In an ideal world, employees could set up their retirement fund allocations and then forget them for years. But when plan options change as they recently did for workers at Boeing, new choices are necessary.
On April 1, Boeing’s 401(k) plan, also known as the VIP plan, stopped offering its large cap value fund and its small/mid cap value fund, merging those funds into actively managed large and small/mid blend funds.
Money invested in the value funds was automatically transferred into the blend funds, taking away two options that we believe are important to long-term investors.
Whenever we evaluate a retirement plan, we look for the best way to emulate the asset allocation strategy described at length in an article called “The ultimate buy-and-hold strategy.”
Boeing plan participants who accept the recent changes and the default reallocations could pay higher expenses and subject themselves to higher risks when fund managers try to beat their market benchmarks.
After studying the other options in Boeing’s plan, Merriman changed its recommendations to include Standard & Poor's 500 Index and Russell 2000 index funds.
While these also lack the value orientation of the funds we formerly used, we believe they will serve investors better than the more expensive actively managed funds. This follows our general practice of favoring lower-cost funds (usually index funds) over higher-cost ones.
Because we do not manage Boeing VIP accounts, participants in that plan who want to continue following our recommendations must take a few specific actions.
Money directed into the U.S. Large Cap Fund (the blend fund) should be moved into the S&P 500 Index Fund.
Money directed into the U.S. Small/Mid Cap Fund should be moved into the Russell 2000 Index Fund.
New contributions that were previously directed to the value funds should go into these index funds.
This leaves Boeing plan participants without a way to overweight their portfolios to value stocks, which is something we recommend. Those who have outside accounts should be sure to include value funds in them.
The change in the Boeing plan illustrates something important for all retirement plan participants to remember: Plan options can change, and plan administrators can automatically make choices contrary to what you might prefer. It is up to participants to notice this.
Over the past year, we have seen many changes in 401(k) and similar plans. We depend on our readers to inform us of these changes. This is the only way we can update our recommendations when it is necessary.
If you work for an employer whose plan is analyzed on our web site, please let us know if your plan options have changed. The easiest way to contact us is via email to
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