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ERISA Tips: Investments and Processes

Editor’s Note: ERISA Tips is a feature provided with you in mind — to make the newsletter more useful to you! If you have any content for ERISA Tips or the 403(b) Advisor that you would like to contribute or suggest, please contact John Iekel, editor of the 403(b) Advisor, at jiekel@usaretirement.org.

This tip is taken from the article “17 403(b) Best Practice Tips” by Jim Phillips.

How plan investments are handled, as well as processes for handling them and serving participants well, is an important part of meeting fiduciary obligations, Phillips points out.

Fiduciaries aren’t held to delivering a particular level of investment return, Phillips says, but they are expected to act in an informed and prudent manner. Having a process in place can help fiduciaries achieve better results, and it can help demonstrate fulfillment of their Duty of Care obligations, he suggests.

The plan should have a thoughtfully conceived and carefully worded investment policy statement (IPS), says Phillips. He further argues that “the IPS should be structured enough to be useful to successive tranches of committee members, but flexible enough to avoid being ‘Plaintiff’s Exhibit #1.’”

An investment menu should be well thought out and tailored to the demographic composition of the employee population, including age and sophistication characteristics, Phillips suggests. He adds that it should be an appropriate size for particular demographic groups, and allow adequate diversification opportunities while not overwhelming participants.

Most plans should offer accessibility help, Phillips says. “It’s one thing to offer a great menu, but getting participants to select suitable individual allocations may be quite another. Age-based and risk-based funds or portfolios can be very useful to participants, if accompanied by appropriate education,” he notes.

And if a plan offers target date funds (TDFs), Phillips offers a reminder of the importance of following the most recent Department of Labor guidance on prudently selecting and monitoring them. And this includes consideration of the glide path (to retirement or through retirement) in light of plan demographics and other relevant factors, he adds.