Schwab Retirement Plan Services Inc. launched a new 401(k) plan designed to lower costs, simplify investing and help workers better prepare for retirement. Called the Schwab Index Advantage, the plan integrates 401(k) features in a unique way to help workers save and invest for retirement.
"It's time to rethink the 401(k) plan and pay closer attention to workers who, now more than ever, are worried about their retirement savings, are often confused by their plan's complexity and may be missing out on the help they need to save and invest for retirement," said Jim McCool, executive vice president and head of Institutional Services at Schwab. "With Schwab Index Advantage we are developing a new alternative for employers and their employees by focusing on the two things that really matter: low cost and independent advice. No major 401(k) provider has offered this type of approach, until now."
To help drive costs down, Schwab Index Advantage provides index mutual funds with low operating expenses instead of the often more expensive actively managed mutual funds found in most 401(k) plans. Focusing on simplicity, the program includes a professional, independent advisory service that develops a savings and investment program with the goal of increasing savings for individuals at retirement. The program also includes an interest-bearing, FDIC insured savings feature through Schwab Bank.
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"In just 30 years, 401(k) plans have grown from zero to nearly $3 trillion in assets," said McCool. "And yet studies show that even as the 401(k) has become the primary savings tool for millions of Americans, nine out of 10 workers worry they won't have enough money for retirement. As an industry, we need to think differently now if we hope to have an impact on their future."
Schwab Index Advantage allows employers, fiduciaries and their consultants to create a 401(k) investment lineup comprised of index mutual funds with low operating expenses, including Schwab funds and funds from other large providers. The company also is developing a version of the new fund that uses only index-based exchange-traded funds.
"Fund operating expenses for index mutual funds and ETFs are typically lower than those associated with most actively managed mutual funds offered in 401(k) plans today. We believe index funds can provide employees with a better opportunity to accumulate more savings for retirement," said Steve Anderson, head of retirement plan services at Charles Schwab. "Through such low-cost investments, fund operating expenses could be cut significantly. For the average worker in a 401(k) plan, that can mean nearly $115,000 more at retirement."
Another significant design component to Schwab Index Advantage is Schwab Retirement Planner, which will offer low-cost, independent, professional asset allocation services based on employee information.
"Employees ask us for help with 401(k) investing every day. This solution is for the many who don't have the time, interest or expertise necessary to effectively manage their 401(k) investments on their own," Anderson said.
The Charles Schwab Corp. provides financial services, with more than 300 offices and 8.5 million client brokerage accounts, 1.5 million corporate retirement plan participants, 777,000 banking accounts, and $1.67 trillion in client assets.
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