As you’ll see in a moment, there are situations when it does make sense to sell short that are consistent with one’s fiduciary duty. Still, the dangers are there and it’s best to proceed into this financial minefield only with the most expert of advice.
Due Diligence
In the end, though, you must remember the PEP is brand new. Not all offerings will offer the same advantages. Some may be designed specifically to forego one advantage to emphasize another.
Here things get a little familiar for companies with pre-existing stand-alone 401k plans (but may need to be discovered by those without plans).
Most 401k investment menus retain the “style box” mentality of the 1990s. Who doesn’t have a kitchen from the 1990s that they don’t want to remodel? Your 401k investment menu is no different.
ESG isn’t going away. There’s no way of telling if it’s a mood ring or a diamond ring. One thing is eminently clear: ESG is a product that people want right now. This complicates life for the retirement plan fiduciary.
The most pertinent issue may not be the fiduciary imperative, but the marketing imperative. This makes things extremely difficult for the 401k plan sponsor who may sometimes confuse which has priority. Here’s an example of why a plan sponsor might be concerned.
Despite the better intentions of finance professors a generation ago, the market regularly fails the efficiency test. The scary reality is not a question of what degree of market inefficiency exists, it’s that market inefficiency exists at all. And that can harm investors.
The proliferation of investment options promised participants a plug-and-play plan. In the process, it created a 401k Frankenstein monster of a mess.
Plan sponsors – or, more specifically, the companies plan participants work for – may be placing employees in a far greater cyber-vulnerable position than they realize.
401k plan sponsors can’t afford to fall victim to the lure of heuristics. Index funds can generate just as much fiduciary headaches as actively managed funds.
