“Investment decisions for your retirement plan start and stop with the investment policy statement,” says Michael Maresh, financial adviser, The Maresh Yoshida 401k Group. The IPS should dictate the type and number of funds as well as when funds should be terminated.
Brett Howell, a wealth management adviser with The Howell & Sharp Group at Merrill Lynch, suggests sponsors first understand who their employees are and put forth a mission statement for their plan.
Craig Keim, VP, and Director of Defined Contribution Relationship Management, T. Rowe Price Retirement Plan Services, advises that sponsors should make sure they are offering enough funds to satisfy requirements of Section 404(c) of the Employee Retirement Income Security Act, but also should ask themselves how many funds they want to deal with administratively.
Howell says sponsors can diversify by choosing funds that do uniquely different things. Maresh added that sponsors should get rid of redundancy, i.e. getting rid of funds in the same category, such as large cap growth.
Concerning monitoring funds, Brian Pietrangelo, Managing Director, Retirement Investment Services, Charles Schwab, told attendees that if they make a promise in the IPS, such as the investment committee will meet quarterly, they need to keep that promise.
According to Keim, other than performance, sponsors should look at fees and revenue sharing, and they should be mindful of other share classes that may be cheaper.
When looking at performance, Maresh says sponsors should use broad criteria in the IPS, look back three to five years. When putting funds on a watch list to be terminated, sponsors should give funds at least a year to improve.He notes that over time, for funds in the same share class, performance will be similar, so expenses are key in monitoring.