Consulting Services
Investment Selection & Monitoring
Designing a good investment selection and monitoring procedure for a 401(k) plan involves several key steps to ensure that the investment options offered are appropriate, diverse, and regularly reviewed for performance and suitability. Here are some topics for consideration. If you have any questions concerning the following topics, please schedule an appointment to discuss.
Develop an IPS outlining the objectives, risk tolerance, and guidelines for selecting and monitoring investment options within the 401(k) plan. Determine which types of investments and asset classes will be utilized within the investment lineup. Some asset investments and asset classes might not be available with all record keepers. Investment types to consider include mutual funds, ETFs, and CITs. Investment management styles include passive, active, models and separate accounts.
Choose a diverse range of investment options that align with the IPS and cater to different risk profiles and investment objectives. Consider including various asset classes such as domestic and international equities, fixed income, target-date funds, index funds, and stable value funds.
Regularly review the performance of each investment option against relevant benchmarks and peer group comparisons. Consider factors such as risk-adjusted returns, expense ratios, turnover rates, and fund manager tenure.
Evaluate the fees and expenses associated with each investment option, including management fees, administrative costs, and any other charges. Aim to offer low-cost investment options to maximize returns for participants.
Assess the risk characteristics of each investment option, including volatility, credit risk, liquidity risk, and concentration risk. Ensure that the overall investment lineup provides adequate diversification to mitigate portfolio risk.
Conduct periodic reviews of the investment lineup, typically annually or semi-annually, to ensure continued alignment with the IPS and evolving market conditions. Consider adjusting the investment options based on performance, changes in investment objectives, or shifts in participant demographics.
Provide clear and transparent communication to plan participants about the investment options available, including their objectives, risks, and performance. Offer educational resources and tools to help participants make informed investment decisions.
Maintain records of investment selection and monitoring activities, including the rationale for adding or removing investment options from the lineup. Document compliance with fiduciary duties and regulatory requirements.
Consider consulting with investment professionals, such as fiduciary advisors or consultants, to provide expertise in selecting and monitoring investment options. Ensure that any investment advice provided is in the best interest of plan participants.
Keep abreast of regulatory developments and changes in industry best practices related to 401(k) plan investments. Ensure compliance with fiduciary responsibilities under ERISA and other relevant regulations.