– Discussions about passive vs. active investing are ongoing, but plan sponsors should consider actively managed funds as an option for 401(k) plans.
– The suggestion that plan sponsors should only offer passively managed funds can be misleading and ignore the fiduciary duty to act in the best interests of plan participants.
– Actively managed funds can provide excellent returns and meet the needs of plan participants.
– Plan sponsors should consider factors such as net returns, return variability, and the availability of index funds in certain investment categories when selecting investment options.
– Offering a mix of actively managed and index funds can give participants greater choice and help them build a portfolio that suits their individual circumstances.
– Avoiding actively managed funds is inconsistent with the fiduciary responsibilities of plan sponsors.
– There are varying opinions on active management vs. passive investment, and plan sponsors should have the flexibility to choose a mix of both.
– Broad generalizations that plan sponsors should avoid actively managed funds do not serve the best interests of plan participants.
The Investment Company Institute (ICI) disagrees with the suggestion that plan sponsors should only offer passively managed funds in 401(k) plans. While discussions about passive vs. active investing are ongoing, it is important to consider actively managed funds as an option for plan sponsors. The authors of the article “Defined Contribution Plans: Challenges and Opportunities for Plan Sponsors” make conclusionary statements about actively managed funds that may confuse plan sponsors. However, plan fiduciaries have a duty to act solely in the interests of the plan’s participants and beneficiaries when selecting investments for a 401(k) plan. This duty does not exclude actively managed funds. The Department of Labor explains that plan fiduciaries should offer a set of investment alternatives that enable participants to construct a portfolio appropriate to their circumstances. This means plan fiduciaries should present a broad range of investment options, which may include actively managed funds. Net returns, return variability, and the availability of index funds in certain investment categories are factors that plan sponsors should consider when selecting investment options. Actively managed funds can provide excellent returns and meet the needs of plan participants. Offering a mix of actively managed and index funds can give participants greater choice and help them build a portfolio that suits their individual circumstances. Avoiding actively managed funds is inconsistent with the fiduciary responsibilities of plan sponsors. There are varying opinions on active management vs. passive investment, and plan sponsors should have the flexibility to choose a mix of both. Broad generalizations that plan sponsors should avoid actively managed funds do not serve the best interests of plan participants.
