Index Based Investment Management Services

401(k) Frequently Asked Questions

1. What is a 401(k) plan?

The 401(k) plan is a savings program set up by employers to help employees save for their retirement. Employees make contributions to their 401(k) through pretax paycheck deductions. Taxes are not paid on the 401(k) account until you start making withdrawals. There are several different versions of the 401(k) and each comes with its own set of rules. Employees should be encouraged to ask questions and get involved with their 401(k) plan. Saving for retirement is crucial and should not be neglected.

Further information regarding 401(k) plans can be found by exploring Blue Ocean 401(k)'s website, including the Frequently Asked Questions (FAQs) page or by following the following links below to supplementary information sites.

2. What can Blue Ocean 401(k) do for you?

Blue Ocean 401(k) offers 401(k) trustees and participants a selection of low cost, diversified index funds that provide broad exposure to stock, commodity, and stable value funds. Employees in a participant directed plan can also use a list of suggested portfolios that are designed by Blue Ocean 401(k) to provide appropriate diversification based on participants' projected needs over a five year time horizon.

Trustees that are in charge of selecting the investments for their plan will work with Blue Ocean 401(k) to develop an investment policy that provides participants with broad exposure to equity, commodity, and stable value funds. The result is a diversified portfolio that increases your odds of achieving favorable long-term results.

There are several different types of 401(k) programs – traditional 401(k) plans, safe harbor 401(k) plans and SIMPLE 401(k) – and each comes with a different set of rules. As a result, it is important for you understand which program your employer is running and how that affects you. The Internal Revenue Service (IRS) provides description of each of these types of programs on their website, which you can visit by clicking here.

3. What are index funds?

An index fund is a mutual fund security that applies a mathematical model and filters to determine the underlying stocks and weightings that comprise it. Due to the vast number of different index funds to choose from, investors can focus on their allocation instead of manager selection. Several independent academic studies have concluded that portfolio allocation, not manager or stock selection, is the key determinant to portfolio performance.

Index funds are made up of underlying stocks that fit into the mathematical or regional parameters that the index generator specifies. Examples include Large US Value Stock Index, Small US Growth Stock Index, Europe Australia Far East (EAFE) Index, and Emerging Market Index. Large US value stocks like Exxon Mobil, Microsoft, and Procter & Gamble would all be exclusively included in the a Large US Value Index Fund – over 300 different issues with value characteristics comprise a US Large Value Index across ten industry sectors. Therefore, you would be buying all 300 stocks when you purchase the index fund – achieving a very efficient and low cost exposure to that set of stocks. Small growth stocks such as Under Armour, Onyx Pharmaceuticals and BE Aerospace would form a different index or group, and those stocks can be just as easily purchased using one index fund.

Investors choosing to use low cost index funds have better odds because they cost less and have eliminated style drift and manager risk. The result is a lower cost, better defined, more broadly diversified portfolio. When it comes to investing, the only thing that can be predicted is the cost. Index funds cost far less than their actively managed counterparts.

4. Does Blue Ocean 401(k) sell securities or index funds?

No. Blue Ocean 401(k) is not a broker/dealer, and therefore does not sell securities. Clients retain Blue Ocean Portfolios to provide fiduciary based investment advisory services. While Blue Ocean Portfolios could use any type of security within your portfolio, it is difficult to conclude that index funds are not the optimal choice for most investors including retirement plans, endowments and foundations.

By not "selling" securities, your odds are most likely better because the conflicts of interest that stem from commission-based compensation to the wealth advisors are eliminated. Many so-called advisors are getting paid from the commission stemming from the securities or investment products that they are selling to their clients. Wouldn't that advice naturally lead to a compensation bias? Conflicts of interest run deep and wide in the wealth management industry.

5. Where is my portfolio held?

For Participant Directed plans, 401(k) portfolios are held inside the mutual funds at the fund location. For example, if you are part of a participant directed plan and you allocate your assets to the Vanguard 500 Index, your money will be held at Vanguard. This plan would come with 24/7 web access and daily valuations. The participants can log in and look at their allocation and performance every day and make changes if they so desire – although that is not recommended (some transactions are subject to restrictions from the fund companies).

For Trustee Directed plans, your 401(k) assets will be held at Scottrade in a separate account. In this instance, your plan trustees develop and implement a thoughtful, diversified, and well defined investment policy where each participant shares a piece the one diversified portfolio held at Scottrade. The trustees would have 24/7 access to the total portfolio activities, performance, allocation and relative benchmark data. Participants would receive a copy of the investment policy and receive quarterly statements with their specific account values and be encouraged to save for their retirement. The plan is designed so that participants that are age 59½ could take an "in service distribution" so they would have the option of rolling out of the plan to address specific retirement planning cash flows, should they wish.

6. How does Blue Ocean 401(k) make money from my account?

Blue Ocean 401(k) makes money by charging a small investment advisory fee based on the size of the 401(k) plan. The fee is typically less than 0.3% charged to the account on an annual basis.

7. What is a fiduciary?

Fiduciary is a legal term that defines a duty to others. By definition and practice a fiduciary must place their clients' interests first. A fiduciary duty is never fully satisfied; they must always seek ways to do what is best for the clients. A fiduciary could never recommend to their clients the purchase of an annuity contract from them, or a stock or bond that their firm underwrote, or even a mutual fund that they receive commissions from or 12b-1 fee revenue sharing. Working with a fiduciary does not mean that clients will make any money; it simply means that as a fiduciary Blue Ocean Portfolios must, at all times, put the clients' interests first. Unlike the vast majority of so called advisors, Blue Ocean Portfolios has a fiduciary duty to their clients.

8. What is the maximum contribution for this year?

The maximum contribution for the year 2014 is $17,500 if you are below age 50, $23,000 if you are age 50 and above.

9. Can I change my contribution?

Employees can change their contribution rate as of any payroll date with 10 days advanced notice

10. What is a vesting schedule?

The term vesting refers to the ownership of the 401(k) account. Employee contributions are always 100% vested, or owned, by the employee. Employer contributions, however, can differ depending on the vesting requirements for the employer. Employer vesting schedules can be found in the Summary Plan Description or the Annual Benefits Statement. Questions can also be directed to your employer or human resources department.

A more detailed description of vesting can found on the IRS by clicking here.

11. Can I make a "hardship withdrawal"?

It depends on the plan. If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. The IRS definition of hardship and further information regarding hardship withdrawals can be found by clicking here.

12. Can I take a loan?

It depends on the plan. 401(k) plans are allowed to offer loans to participants but they are not required to. The maximum loan amount is 50% of your vested balance or $50,000 – whichever is less. Generally, loans must be repaid in 5 years. More information on 401(k) loans can be found on the IRS site by clicking here.

13. What are the fees that Blue Ocean 401(k) charges?

Blue Ocean 401(k)'s fee schedule depends on whether the 401(k) program is participant directed or trustee directed plan. The fees then depend on the number of participants and the assets under management. In most cases, trustee directed programs will have lower fees associated with them, though this may not always be the case. Blue Ocean 401(k) will provide an analysis of a plan's current fees and the fees that would be incurred under our management before any investment decisions are made.

14. What is Ekon Benefits?

Ekon Benefits is a Third Party Advisor (TPA) that Blue Ocean 401(k) works with to manage 401(k) programs. Generally, Ekon Benefits takes on an administrative role, depending on the 401(k) program structure (participant versus trustee directed). In this role they are responsible for providing web access, record keeping, and administering loans and distributions. A link to Ekon Benefits can be found on Blue Ocean 401(k)'s webpage.

15. How does Blue Ocean 401(k) educate participants?

Blue Ocean 401(k) understands the importance of educating 401(k) trustees and participants. The 401(k) savings vehicle is an invaluable tool when planning for retirement and communicating the benefits of participating is paramount.

Educational materials such as blogs, videos, articles of interest, and recommended books can be found on Blue Ocean 401(k)'s webpage along with links to various sites that provide supplemental information about the 401(k) program in general. Blue Ocean 401(k) also recommends at least one annual meeting to discuss plan specifics with participants and trustees. These meetings provide an opportunity for participants to ask questions and for Blue Ocean 401(k) to review the investment process and reiterate the benefits of participation.

Participants are encouraged to ask questions and get involved with their 401(k) program. The bottom line is that participants should be planning and saving for retirement from an early stage because no one will do if for them.

Further Information
For questions that are not addressed on the FAQ page, feel free to contact us at 314-997-7400 or at This email address is being protected from spambots. You need JavaScript enabled to view it.. Further information can also be found by visiting the IRS 401(k) Resource Guide.

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