Managing 401(k) Plan Investments
Challenges for 401(k) Sponsors
Plan sponsors face a wide variety of challenges when providing a 401(k) plan. In order for the retirement plan to be successful, it must balance the goals of the business, its leaders and employees, all while meeting compliance standards required by federal laws. As 401(k) plans play a bigger role in the future of America's retirement security, plan sponsors need more specialized advice from their providers. As a financial counselor, that’s something we can provide.
Offering a 401(k) plan greatly improves the chances that your employees will be more prepared financially for retirement if employees take advantage of the benefits and invest wisely.
Communication is Key
A 401(k) plan cannot be considered successful if employees do not understand the benefits being offered and do not participate in the plan. ERISA (the Employee Retirement Income Security Act of 1974) has guidelines for certain communication that are required to be given to employees. But beyond that, educating them on their plan features and benefits is equally important.
Each Audience is Unique
To make an employee education program effective, it is important to consider the unique set of educational and demographic needs, and tailor the content and format to best serve those needs.
Managing Plan Investments
Investment selection and monitoring is important work for plan sponsors. It should be done with care and expertise, while avoiding distractions from financial headlines.
Since the financial crisis of 2008, regulators have increasingly challenged plan fiduciaries. Essentially, investment management for a corporate retirement plan is all about process. The courts have made this point very clear.
The Decision Making Cornerstone (the committee)
Forming a 401(k) committee provides the foundation for effective plan oversight. The main purpose of a committee is to manage fiduciary responsibilities, and ensure the plan remains competitive.
An Essential Roadmap (the IPS)
The investment policy statement outlines the criteria for assessing plan funds. It provides guidelines for consistent decision-making and can reduce fiduciary liability.
Under ERISA, specific standards of conduct are required of plan fiduciaries. Plan fiduciaries are: the plan sponsor, those with "discretionary control" over the plan, investment advisers, and others.
What are the main responsibilities of a fiduciary?
Fiduciaries have important responsibilities, and are subject to high standards of conduct, because they act on behalf of plan participants and beneficiaries. Fiduciaries are expected to serve with:
1) Prudence: Acting prudently is one of a fiduciary’s central responsibilities and focuses on the process of making decisions.
2) Loyalty: Fiduciaries are expected to act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.
3) Diversification: Another key fiduciary responsibility is diversifying plan investments and paying only reasonable plan expenses.
4) Adherence: It is important that fiduciaries understand and follow the documents governing its plan.