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    Building a Better Investment Lineup for the 401(k) Plan

    The Setup

    A privately held company with a long-standing 401(k) plan had recently hired a new Benefits Manager who was not entirely satisfied after a review of the performance of the existing plan. Hoping to improve performance and service, the new manager was open to discussing alternate approaches with new firms. MGO was invited to participate in the review.
     

    The Conflict

    MGO’s analysis of the company’s existing plan’s core fund investment options showed the plan’s current fund lineup was lacking. Not only did the plan have only one fund family available to investors, the funds in the plan had 50% stock overlap! The result was, participants who thought they were diversifying by choosing different fund options were not achieving proper diversification. This was contributing to underperformance and excess volatility within the plan.
     

    The MGO Solution

    MGO recommended a core menu that included a mixture of fund families with funds in those families more diversely allocated. This helps to avoid stock overlap, resulting in a healthy mix of large, medium, small cap funds, short, intermediate and long-term bonds as well as growth and value stocks at different cap levels. 
     

    The Result

    The result is a core fund menu that is more diversified than the prior investment menu. Additionally, MGO consults with plan participants to assist them in making selections appropriate for their individual time horizon and comfort with risk. Even more than having diversified options, the participants were happy to have the assistance from MGO investment professionals. This access bolstered participation in the plan as participating employees gained confidence in the investment decisions they were making.