Do you know your employee’s rate of return over the last 3, 5 or 10 years? How does it compare against the S & P 500 or other plan benchmark? Without knowing, how can you justify to them or a regulator the employee is getting their monies worth? You may have been told that your menu is 5 stars. If a 5 star menu yields 1 star results, is it really 5 star?
Poor investment performance often can be traced to:
- Excessive fees embedded in the investments
- Bad investment options
- Poor asset allocation by the participant
The law holds you to a prudent investment process standard. Typically that is interpreted as having an investment policy statement and following it. In your own organization, do you simply judge yourself by results or process? In companies I have worked for, results were used to interpret the strength of the process. Simply, did the ship come in?
Do you have an investment policy statement? Do you follow it?
Now turning to fees. When was the last time you had an independent investment review of the investment fees? Brokers and other providers who take on no fiduciary liability are free to get paid as much as possible. The law holds you to a higher standard.
Regarding investment options, did you know your investment providers and some platform providers, especially those that sell investments have a business interest to show you investments in the best light? Do you have an independent advisor, using an independent data source review your investment options? Think Bernie Madoff. Some responsible plan fiduciaries exposed themselves to personal risk by authorizing their employees entrust their retirement money to his care.
You may think that what your employees invest in is not your fault. Poor asset allocation decisions by your employees are your fault unless you comply with the Participant Investment Decision Safe Harbor known as 404(c). One of the elements to satisfy its requirements is education. Does your plan provide education on the options or just provide information? Noted ERISA Attorney Fred Reish, has pointed out that it is a rare occurrence that companies actually comply.
Getting a plan investment review will provide confidence that you are using a prudent investment process. It should help lead to actions you can take to help your employees towards an independent retirement. Contact us today.