When you join an employer-sponsored 401(k) retirement savings plan, your management options depend on the plan’s structure. Your plan contributions could be automatically placed in target date funds, or you might have the option to choose your own investments from the available funds which is known as a participant-directed account. However, neither of these options constitutes a managed account, where a financial advisor actively manages your investments based on your personal retirement goals and risk tolerance.
If you’ve been contributing to your 401(k) for a while, you might have accumulated a significant balance. Are you confident that your investments are aligned with your retirement goals as well as family financial objectives?
Target date funds
Nearly 95% of employers design their 401(k) plans to default participant balances into target date funds, according to a Fidelity report.1 These funds, typically mutual funds or ETFs (exchange-traded funds), automatically adjust or rebalance based on a specific timeline that’s aligned with a planned retirement age. In addition to selecting investments, target date funds involve continuous monitoring and adjustments to help you reach a certain amount of retirement savings. This “set it and forget it” approach can seem convenient, but it means you have limited control over the investment choices and the long-term performance results may not meet your retirement goals and needs. Nor does it take into account other areas of your finances.
Participant-directed accounts
Opting for a participant-directed 401(k) plan can carry more risk of not meeting your retirement goals if you aren’t a knowledgeable and savvy investor. Managing the account likely requires a significant investment of time and effort. According to Vanguard, their average plan in 2023 offered nearly 30 investment options including those that comprise target date funds.2 Extensive research may be necessary to determine which investments to choose and when to make those choices. While having control over your plan’s investments might seem appealing, it’s crucial to understand that there can be pitfalls that come with this responsibility. This could also add to your other personal finance responsibilities.
Managed accounts
A registered investment advisor (RIA) such as Mercer Advisors can help you manage your employer-sponsored 401(k) by providing professional experience and guidance with complex investment decisions. Typically, with this approach you would still have to actively log into your account to make recommended selections and any changes within your account.
However, hiring an advisor to actively manage your accounts includes much more. For instance, Mercer Advisors has a program for our clients called Account Bridge that can consolidate 401(k), 403(b), 457, and some TSP accounts under one integrated strategy to align with other aspects of your financial plan. Further, we also manage all the activity in the account related to trades, allocations, rebalancing, and more — so you don’t have to.
In addition, our Account Bridge offering includes:
- Comprehensive financial planning: Connecting the dots of your entire financial life, including other investment accounts, Social Security strategies, and retirement income sources, to create a plan of action for helping achieve your 401(k) plan long-term goals. Our comprehensive wealth management solution can also integrate tax, estate, and insurance planning for you.
- Tax efficiency plans: Helping you structure your retirement plan withdrawals and contributions in a tax-efficient manner, potentially saving you significant amounts of money. We also offer tax planning and preparation services to help optimize your overall tax strategy associated with a 401(k) plan as well as in other financial areas.
- Personalized investment strategies: Creating a custom portfolio to help with meeting your risk tolerance, desired rate of return, and time horizon, and aligning your 401(k) plan with those goals. Our institutional-grade investing approach includes a team of professionals overseeing your investments.
- Ongoing portfolio monitoring and adjustments: Monitoring your entire investment portfolio continuously and making necessary adjustments to help keep you on track towards your retirement goals and long-term investing objectives. We also track fund fees and make changes that can help lower your costs.
- Reassurance: Allowing you to focus your time and energy on other aspects of your life without worrying about your 401(k) plan and retirement security. As a fiduciary, we are obligated to always operate in your best interest as we would with your other types of investment accounts.
Taking control
If you want personalized management of your employer-sponsored 401(k) plan to help you meet your long-term financial goals — but don’t want the work and worry — active management and the Account Bridge program could be right for you. It’s also a more proactive approach than leaving it up to a target date fund, and typically a less risky approach than a participant-directed account. In addition, being able to align your retirement savings account with all the other areas of your financial life is ideal for helping to build wealth and security for you and your family.
Are you a Mercer Advisors client? Be sure to ask your wealth advisor about the Account Bridge program and integrating your retirement accounts into your financial plan.
Not a Mercer Advisors client and want to know more about how we can help with actively managing your employer-sponsored 401(k) plan? We can provide you with a unified approach to financial planning, investment management, tax planning, estate planning, and insurance solutions. Let’s talk.
1 “Building Financial Futures.” Fidelity, 26 Nov. 2024.
2 “How America Saves 2024.” Vanguard, June 2024.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
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