Accounting

Old Method

New Method

Balance Forward: 401(k) balances reported quarterly. This has been the industry standard. Most old plans and many of the new smaller plans are still using this expensive and labor intensive methodology.

Daily Valuations: Daily valuations have become a requirement of most new 401(k) Plans. With this new internet or telephone based technology, participants can get daily information and trade their account as often as they wish. Although this is a valuable tool, the active trading of the account will probably reduce total returns.

Education and Communication

Old Method

New Method

Paper Based Delivery: Prior to the wide accessibility of the internet, very expensive brochures, manuals, payroll stuffers and various paper forms were used to communicate to employees. The high cost of these printed materials and postage were paid for by the company and/or the employees. These costs, along with inadequate investment advice, make it very difficult to even earn a positive return on investment, as you will see in the cost comparison table on the next page.

Internet Delivery: Since all employees can access the internet at home or at work, it is now feasible to provide all information relating to the 401k plan over the internet. Participants can log on to a secure web site, enroll in the plan, take risk capacity surveys, choose an asset allocation, and view their daily balances. They can also review educational videos, dynamic charts and other materials, and read the plan document details. Since this can be provided at a fraction of the cost of printed materials and be frequently updated, it has become the preferred method of communication.

Structure

Old Method

New Method

Proprietary Bundled Service: Because of the cost-intensive nature of the "old-school" 401(k) service methods, single providers such as Fidelity, Vanguard, The Principal, Manulife, etc., had an upper hand in the marketing of 401(k) plans. They were the only firms who could spread the costs over their very large asset bases.

Open Architecture: The new web-based database technology make 401(k) Plan services flexible and immediately available to thousands of employees. This also allows access to thousands of investment options rather than those offered from a single source fund family or an insurance company. Institutional style index funds from DFA have recently been made available for 401(k) plans. These are the number-one rated mutual funds.

Investments

Old Method

New Method

High fee, actively managed funds with participants "running wild" with their choices.

Premixed, risk-calibrated, efficient, globally diversified portfolios of index funds. Employees take a risk capacity survey which directs them to an appropriate risk exposure or portfolio of index funds.