The American Way 401(k)

Reengineering the 401(k) is required to help plan sponsors build 401(k) solutions focused on the participant, maximizing the potential of their 401(k). Participants should be offered properly constructed investment strategies.

In the past, 401(k) plans were shaped by market forces, often contrary to the best interest of the participants and the plan sponsor. Current 401(k) plans evolved from commingled trusted profit sharing plans with independent, professional asset management.

However, financial institutions argued that trusted plans could not recognize the participant’s individual risk tolerance and time horizon, and as a result promoted individually directed accounts. Additionally, insurance companies and mutual fund families promoted daily valuation to garner market share for their own benefit.

Consequently, 401(k) plans have become structured in a way that can confuse and negatively impact the potential returns of a participant’s retirement fund. At the same time, the demise of the defined benefit plan has made the 401(k) plan the primary savings vehicle for most Americans, rather than a supplement.

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Ekon Benefits designed this product as a means for employers to best assist their greatest resource

– their employees –

in planning for a successful retirement future.

The American Way product couples low expenses, active & passive funds, target date fund alternatives, analytical allocation models, effective diversification strategies, and an open architecture trading platform.

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Ekon Benefits is a consulting and administration firm, specializing in services for employer and jointly sponsored retirement and health and welfare plans. Ekon was founded in St. Louis, MO in 1981 and now provides plan administration, hours recordkeeping, actuarial, and consulting services to hundreds of clients throughout the United States. We pride ourselves on providing superior, customized services to meet the needs of each plan sponsor.

Why partner with Ekon Benefits?

The American Way product couples low expenses, active & passive funds, target date fund alternatives, analytical allocation models, effective diversification strategies, and an open architecture trading platform.

In our co-fiduciary role in your 401(k) plan, we take pride in the duty to make reasonable investment recommendations while always placing the needs of the participant first. Additionally, we protect your fiduciary liability, restructure your plan, benchmark your plan’s investments, and provide ongoing education to your participants.

Together, we help your participants make the most out of their 401(k) plan.

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Open Architecture platforms allow funds to be mixed between proprietary and nonproprietary investment products.

Open Architecture platforms allow for the best quality funds to be included in the fund line-up with access to a wide range of successful fund managers. Ultimately, the open architecture platform allows for reduced cost and improved quality.

Effective diversification considers the number of funds utilized, asset classes and size, and overall portfolio allocation.

Fiduciaries have the responsibility to provide participants with an adequate fund line-up in order to allow participants to diversify their retirement savings. The proper number of funds utilized for a well-diversified portfolio has changed over time, however a good rule of thumb is 15-20 funds.

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More important than the number of funds is how diversified the portfolio is among asset classes.

While there are three major asset classes (stocks, bonds, and cash equivalents), equities can be further categorized by style, creating seven major asset categories that serve a purpose in diversifying the portfolio. Risk increases from left to right among the asset categories, shown below.

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In addition to categorizing by style, U.S. equities can also be classified by size.

Portfolio allocation refers to the proportion of equities to bonds which determines the broad risk level of the portfolio. A normal balanced portfolio is typically composed of 65% equities and 35% bond funds. Mixing equities and bonds helps bridge performance gaps between stocks and bonds, contributes downside risk protection, reduces volatility, and allows for more stable and potentially better long-term results.
Ultimately, designing an effective fund line-up structure can not only help participants diversify, but also assist the American worker in understanding the components of the ‘asset allocation engine’.

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Active and passive strategies each have their own advantages, combine them and you get the best of both worlds.

The opportunity for market outperformance has long encouraged investors to take advantage of professionally, actively managed funds. Alternatively, the low fees associated with passively managed funds also attract investors. The question is whether the higher potential returns or lower associated fees are more advantageous for investors.

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Yes! Target Date Funds are available in the American Way 401(k).

A Target Date Fund is an investment strategy which has a predetermined asset allocation of stocks, bonds, cash, and other investments based on the selected target date, generally associated with the investor’s retirement date.

Target Date Funds are invested more aggressively for younger participants and are systematically rebalanced to become more conservative over time.

Target Date Funds have become increasingly popular as the Department of Labor endorsed them as an acceptable Qualified Default Investment Alternative (QDIA) for 401(k) Plans.