Employers may select any investment, regardless of fund family, for their 401(k) plans.

Plan sponsors who believe cost control is an important
criteria for selecting investments should consider the EF Smart Plan, which contains widely traded investments screened by cost, to make sure that investment-related charges paid by participants are among the lowest in the business.

 
   
 
   
The EF Smart Plan
  Employee Fiduciary scours the mutual-fund market looking for the least expensive, widely traded investments for employers to offer in their plans.
 
 

Today, the lowest cost funds offered in the EF Smart Plan have expense ratios that average less than 1/5th of 1% (20 basis points) with turnover that averages less than 50%. By selecting a diversified portfolio of these low cost investments, participants can earn market returns, year-in and year-out, and save as much as 80% on fees each year, compared to a typical fully bundled, broker-sold plan.
 
 

Cost-conscious plan sponsors may even offer employees investments made up almost entirely of low-cost index funds or exchange traded funds (ETFs).
   
 

EF Smart Plan Index Fund Example

   
 

EF Smart Plan ETF Example
   
What are Index Funds?
 

Index funds are mutual funds that attempt to match the performance of a particular index. The investment objective is merely to mirror a public index, such as the S&P 500, rather than try to beat it. Because it requires much less research and effort to copy an index than to try to outperform it, index funds are commonly referred to as “passive investments” and traditionally have expenses that are much less than “actively managed” mutual funds.
   
What are ETFs?
 

From 1990 to 2004, index funds were the fastest growing investment choice in America. Exchange Traded Funds (ETFs) are index funds that track the major market indexes, such as the S&P 500 or Russell 3000. Unlike traditional index funds, which trade at the fund’s net asset value (NAV), ETFs trade like stocks, whose price is determined by the market. At times, these funds trade at a discount or premium relative to their corresponding index. For long-term investors, however, this tracking drift has minimal impact and is more than offset by benefits of low-fee investing.
   
 

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Today, ETFs are the fastest growing investment choice in America.
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What Makes Low Cost Index Funds and ETFs So Popular?
  Low cost index funds and ETFs are the most cost-effective way for long-term investors to build a retirement nest egg. Take a look at the expense ratio and performance of the index funds and ETFs offered in our 401(k) plan versus comparable actively-managed mutual funds:
   
 
Name of Plan
Expense Ratio
2003 Performance
3 Year Performance
EF Smart Plan portfolio average
0.15%
32.18%
0.62%
   Performance after fees  
32.03%
0.17%
Average U.S. domestic equity fund
1.51%
32.91%
-.38%
   Performance after fees  
31.40%
-4.82%
   
 
This information reflects past performance. Past performance is not a guide to future performance, and future returns are not guaranteed.
   
  Although pre-fee performance is roughly comparable, realized returns, calculated after fees have been paid, demonstrate the real power of low-cost investing. From 2001 thru 2003, an investor beginning with an account balance of $50,000 could have earned approximately $4,535 more for retirement (saving $2,040 in fees and earning $2,495 more in compounded returns) than the average mutual fund by choosing investments offered in the EF Smart Plan.1
 

 

Can't Actively Managed Funds Beat the Market?
 

Brokers selling expensive mutual funds and other investment options may say that fees are less important than performance. Higher fees, they may argue, are offset by larger returns. Empirically, however, the odds of finding a fund that outperforms the market five years in a row are about as remote as catching a foul ball in a packed stadium.
   
  Do you know what the odds of selecting a fund to beat the market 12 years in a row is? 1 in 477,000! That is roughly the same odds as getting struck by lightning.
   
 

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What are the odds of finding a fund that beats the market 12 years in a row?
Roughly the same as getting struck by lightning
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  This is why prudent fiduciary managers insist that, over time, the number one determinant of investment performance is fee control. To learn more about the importance of fees and the benefits of low-cost “passive” index investing, click here.
   
   
 

1 Amounts are for comparative purposes only, are not predictive and are no guarantee of future results. All 401(k) plans may lose value and are subject to investment risk, including possible loss of principal.
   
   
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