Charles Schwab Launches Unique 401(k) Plan Solution Designed to Address Barriers to Retirement Saving and Investing

Schwab Index Advantage™ to Benefit Employees Through Low-cost Investments & Broader Use of Personalized, Independent Advice

Tuesday, January 10, 2012 11:00 am PST



Public Company Information:

"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"

SAN FRANCISCO--(BUSINESS WIRE)--Schwab Retirement Plan Services, Inc., a major 401(k) provider to approximately 1.5 million workers saving through company retirement plans, today launched Schwab Index Advantage, a one-of-a-kind 401(k) plan offer designed to lower costs, simplify investing and help workers better prepare 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.”

Schwab’s new offer integrates 401(k) features in a unique way to help workers save and invest for retirement. 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.

“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.”

Low-cost Investing for Employees

Now with Schwab Index Advantage, employers, fiduciaries and their consultants will be able to create a 401(k) investment fund lineup comprised exclusively of index mutual funds with low operating expenses, including Schwab funds as well as funds from other large, well-known fund providers. These funds are designed to track established market indexes and represent a range of equity sizes, styles, and geographies as well as fixed-income and other asset classes. Schwab is also developing a version of Schwab Index Advantage that will use only index-based exchange-traded funds (ETFs) in the investment lineup so employers will ultimately have a choice – index mutual funds or ETFs.

“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.”**

Streamlined Plan Design for Employers

From an employer’s perspective, the value of index investing may extend beyond cost-efficiency. “An index-only approach may streamline the time employers need to spend during the fund selection and review process. This can result in a simpler, more efficient way to approach fund selection and ongoing plan investment review compared with the time employers traditionally spend evaluating an actively managed fund lineup for their 401(k) plan,” said Anderson. “This is another reason employers are responding favorably to our 100% index-only investment approach with Schwab Index Advantage.”

Schwab Retirement Planner™ - Personalized Retirement Saving and Investment Strategy

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.

GuidedChoice Asset Management, Inc. (GuidedChoice) will provide the third-party advice and account management service. GuidedChoice is an independent advisory firm that brings high-quality managed account services, investment advice, and planning tools to retirement plan participants nationwide. Working primarily through plan sponsors and financial intermediaries, GuidedChoice is a major provider in the industry, with over 250,000 investment accounts and more than five million individuals offered advice in more than 75,000 retirement plans.

Employees will be enrolled into the new managed account advisory service and receive ongoing investment guidance based on a variety of factors including age, income, account balance and savings rate in their 401(k) plan. “Other common 401(k) investment solutions, such as target date funds, may consider only an employee’s age – a simplistic, one-size-fits-all approach. Schwab Retirement Planner takes multiple factors into account, providing a more informed, personalized investment strategy for each employee using the funds their employer has selected for the plan,” Anderson added. “And employees who choose to take advantage of a personal consultation can work to better refine their savings plan to help them reach their retirement goals.”

Recent Schwab data shows that employees who use independent professional advice services inside their 401(k) plan have tended to save twice as much, were better diversified and stuck to their long-term plan, even in the most volatile market environments. “Despite these obvious benefits, only about one in ten employees takes advantage of professional advice today. Employers should expect a significant increase in the number of employees receiving advice with our new approach,” Anderson explained.***

In addition, Schwab Retirement Planner will include a personal retirement-readiness score for employees. The calculation will consider multiple factors and show employees their projected monthly retirement income to help them identify savings gaps and the steps they can take to stay on track.

Employees who prefer to manage their account themselves can do so at any time using either the index funds provided under the plan, or by opening a self-directed brokerage account (SDBA) if their employer offers this feature through their 401(k) plan. Schwab’s SDBA offering – the Schwab Personal Choice Retirement Account® - provides access to thousands of mutual funds (both active and index) as well as ETFs.

Schwab Bank Savings - FDIC-Insured Deposit Feature

Another key addition to Schwab Index Advantage is Schwab Bank Savings, an FDIC-insured deposit feature that serves as a capital preservation option in an employee’s 401(k) account. Schwab Bank Savings is offered through Charles Schwab Bank, and is federally insured up to $250,000 per depositor.

“Employers and employees alike have told us they place a high value on the stability and sense of security they feel with an interest-bearing, FDIC-insured deposit feature as part of the 401(k) plan,” said Anderson.

Making a difference

“For millions of workers relying on 401(k) plans, the responsibility for saving enough rests squarely on their shoulders alone, and most are not on track,” concluded Schwab’s McCool. “To help them, we have rethought the traditional 401(k) offer and created a comprehensive, elegant alternative designed to strip away the unnecessary complexity, confusion and fund expenses that are often barriers to a more secure retirement future.”

Employers interested in learning more about Schwab Index Advantage can find additional information by calling Schwab at 1-877-456-0777.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of 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. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides trust and custody services, banking and mortgage services and products. More information is available at and (0911-6111)

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Schwab Retirement Plan Services, Inc., Charles Schwab Bank, and Charles Schwab & Co., Inc. are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products and services are offered by Charles Schwab & Co., Inc. (Member SIPC). Trust and custody services are provided by Charles Schwab Bank.

Schwab Retirement Planner(TM) provides you with a retirement savings and investment strategy, a major component of which is a discretionary investment management service furnished by GuidedChoice Asset Management, Inc. (“GuidedChoice”), an independent investment advisor. GuidedChoice creates discretionary managed portfolios based on Modern Portfolio Theory using investment alternatives available in your plan. GuidedChoice is not affiliated with or an agent of Schwab Retirement Plan Services, Inc. ("SRPS"), Charles Schwab & Co., Inc. ("CS&Co."), or their affiliates. Neither CS&Co., SRPS, nor their affiliates supervise, make recommendations with respect to, or take responsibility for monitoring the services provided to participants by GuidedChoice. Schwab Advice Consultants, who are employees of CS&Co. and not of GuidedChoice, facilitate participant access to the GuidedChoice services, but do not provide investment advice or recommendations regarding the GuidedChoice services or generally as part of Schwab Retirement Planner. Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market. There is no guarantee your savings and investment strategy will provide adequate income at or through your retirement. Fees are charged for Schwab Retirement Planner, including its discretionary investment management service. You should carefully consider information contained in the materials furnished at your employer's direction regarding the services provided by Schwab and GuidedChoice including information regarding compensation, affiliations and potential conflicts. Results for Schwab Retirement Planner are not guaranteed. These services provide discretionary management and related services for a fee that will be based on the participant’s account balance.

Schwab Bank Savings is only available in select retirement plans administered by Schwab Retirement Plan Services, Inc. Funds deposited at Charles Schwab Bank are insured, in aggregate, up to $250,000 based on account ownership type, by the Federal Deposit Insurance Corporation (FDIC). You are responsible for monitoring the total amount of deposits you hold with Schwab Bank, including any deposits held at Schwab Bank in an employee benefit plan account, such as a Personal Choice Retirement Account®. Because the deposit insurance rules are complex, you may want to contact the FDIC or use the FDIC’s online tool, Electronic Deposit Insurance Estimator (EDIE), to estimate your total coverage.

*EBRI, 2011 Retirement Confidence Survey Fact Sheet #1, (

** Hypothetical assumptions for illustrative purposes only supporting an additional ~$115,000 to a 401(k) participant’s retirement savings: Annual market growth, 7.50%; initial contribution rate (year 1), 5.00%; increase in contribution rate (year 2-6), 1.00%; ongoing contribution rate (post year 6), 10.00%; industry standard employer match, $.50 per $1 for the first 6% of income contributed; beginning salary, $50,000; yearly salary increase, 3.0%; starting age, 25; age at first year of distributions, 55; percent of last salary distributed annually, 50.0%; Approximate difference of $115,000 represents the additional account balance resulting from an investment allocation comprised of index mutual funds with a weighted operating expense ratio (OER) of 20 basis points versus an investment allocation comprised of actively managed mutual funds with a higher weighted OER of 86 basis points The 86 basis point assumption is based on Cerulli analysis of mid-sized 401(k) plans. Assumptions do not factor in the potential impact of professional, independent advice services, nor any fees that may be associated with these services or other fees that may be charged to a participant account.

***Advice data based on plans serviced by Schwab Retirement Plan Services, Inc. that offer independent advice to their participants through GuidedChoice.

Some of the statements may be forward looking and contain certain risks and uncertainties. There can be no guarantee of future performance. The views expressed are subject to change based on market and other various conditions.

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.


Charles Schwab
Mike Peterson, 330-908-4334
Intermarket Communications
Eric Hazard, 212-754-5610

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