The Fund Industry: How Your Money is Managed, 2nd Edition

CHAPTER 12

Retirement Saving through 401(k) Plans

Employer-sponsored retirement plans—which are retirement savings programs that are available to individuals through their workplaces—are the third major distribution channel for mutual funds, in addition to the intermediary and direct channels. These retirement plans accounted for over one-third of industry assets at the end of 2013. At the same time, mutual funds play a critical role in these plans; as an example, 60 percent of assets in 401(k) retirement plans were invested in mutual funds.¹

Selling fund shares through an employer-sponsored plan is a multistep process:

• First, a plan administrator, often a fund manager, works with an employer to establish a plan for its workforce.
• The employer, perhaps with the help of a plan administrator, financial adviser, or independent consultant, chooses funds to include as investment options in the plan.
• The plan administrator provides employees with information on the benefits of the plan and encourages them to participate.
• Only then do the employees who have enrolled in the plan choose one or more of the mutual funds or other investment options available in the plan.

So, an employer-sponsored plan involves sales to at least two parties—the employer and the employee—and maybe to some third-party advisers as well—such as an administrator, financial adviser, or consultant.

We take a close look in this chapter at the structure of the most popular of the employer-sponsored plans—the 401(k) ...