A 401(k) investment menu isn\u2019t a museum exhibit. Investments aren\u2019t supposed to be placed on display and left untouched for decades.<\/p>\n
Yet that is exactly what some plan sponsors do.<\/p>\n
At my old fakakta law firm, we had investments on the 401(k) plan lineup that hadn\u2019t been changed for about 10 years. Why? We didn\u2019t have a financial advisor. Nobody was really monitoring the investments, so the lineup essentially remained frozen in time. Ten years is an eternity when you\u2019re talking about investments.<\/p>\n
Plan sponsors have a fiduciary responsibility to prudently select and monitor plan investments. That doesn\u2019t mean constantly replacing funds because of one bad quarter. It means having a process for regularly reviewing performance, expenses, management changes, investment style, benchmarks, and whether each investment continues to serve a legitimate purpose on the menu.<\/p>\n
The biggest mistake is assuming that no news is good news. An investment doesn\u2019t become prudent simply because nobody complained about it.<\/p>\n
This is also why I believe having a competent retirement plan advisor is so important. Someone needs to help the fiduciaries monitor the lineup, document the process, and recommend changes when appropriate. The plan sponsor still retains fiduciary responsibility, but a good advisor helps make sure somebody is actually paying attention.<\/p>\n
Investment committees should meet periodically and document their decisions. Keep minutes. Follow an investment policy statement if you have one. If a fund is being monitored, document why. If it\u2019s being replaced, document why.<\/p>\n
The objective isn\u2019t to constantly change investments.<\/p>\n
The objective is to demonstrate a prudent process.<\/p>\n
Your participants are investing their retirement savings through the menu you provide.<\/p>\n
Don\u2019t let that menu become a museum exhibit because nobody bothered to look at it for 10 years.<\/p>\n
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