What’s the biggest problem with 401(k) plans that is not being addressed?It’s the investment returns of the participants. How do you maximize the number of participants holding a highly diversified global portfolio? Yet the basis of 401(k) plans is that participants have the freedom to put their money where they wish! How can you ensure great investment decisions in that environment of freedom? We have a way - but first let's see what plans look like now.As you can see, typical plans have way too many choices - too many groups of choices - and no investment advice. Participants receive "fund education" only - no investment help! 
(Click to enlarge, back arrow to return.) As you look at this depiction of a typical plan fund line-up note these problems.Remember the goal should be DIVERSIFICATION. Overlap is the opposite of diversification. Note that some active funds overlap with themselves, the active funds overlap with the index funds, and both active/index overlap with target date funds. All the funds expect index funds are under-diversified.Often Plan Sponsors yield to the idea of "pleasing" participants with the fund options by offering more. That is a breach of their fiduciary duty since this hurts participants' returns. Give them what they need to maximize their success not what they want.Addressing the target date fund, proprietary and opaque fund problems requires a separate blog post.Bottom line - today's 401(k) fund lineups do not result in participants holding highly diversified global portfolios, which should be the goal.Here's a telling story. We help our family clients decide how to allocate their money in their 401(k) accounts. We ask them to give us a list of every fund choice including ticker symbol. We provide this 401(k) investment advice at no additional cost to our clients. It is a tedious job! It's annoying at best. We are investment advisors and we find it a huge chore to design a portfolio from the awful list of funds. If that doesn't tell you something, I don't know what will!Now look at a fund lineup that dramatically improves the odds that participants will be properly invested.
(Click to enlarge, back arrow to return.)On the right in blue, this plan has a basket of non-overlapping, low expenses ratio, high quality funds, On the left are five professional designed portfolios using the funds on the right.When it is explained to participants that they can either design their own portfolio or use the professionally designed portfolios using the same list of funds - nearly every participant chooses one of the designed models. Why reinvest the wheel when the experts have done it for us? As a result, a high percentage of participants have properly allocated 401(k) assets and will achieve the available performance of the global market! See - this can be done!This can result in each participant having from 30% to 100% more after a 20 year period of experiencing the available returns.
Problem solved*!
* Assuming you are invested in a an effective globally invested portfolio - you need to STAY in it all the time or else you experience the behavior gap - read our blog about it here.