As a fiduciary, you hold the important responsibility of overseeing your company’s retirement plan to ensure it serves the best interests of your plan participants while being managed efficiently and remaining compliant with the latest regulations. Fiduciaries of ERISA plans are legally required to regularly monitor their retirement plan by conducting well-documented plan reviews.
In today’s increasingly complex landscape of retirement plan administration, regular plan reviews are not simply a best practice — they are required to fulfill your fiduciary duty and are an essential part of safeguarding your employees’ financial futures.
At CBIZ, our fiduciary plan assessments can help organizations identify strengths, uncover risks, and provide actionable recommendations to help improve the health of your retirement plan. One of the key areas of focus for a retirement plan review is the plan’s investment lineup.
Why Investments Matter for Retirement Plans
One of the central components of a healthy retirement plan is the investment lineup offered to participants. Fiduciaries are required to prudently select, monitor, and adjust investments to promote favorable retirement outcomes while ensuring that participants are making informed decisions about their financial future.
Offering a strong investment lineup is an essential component to helping participants grow their retirement savings and manage risk. At the same time, regular oversight of these investment options can help participants avoid excessive fees and underperformance, which can improve participant outcomes.
Risks to Plan Health
Failure to focus on your plan’s investments may expose both plan sponsors and participants to risks including:
- Poor returns: Inadequate monitoring of fund performance can result in poor investment returns for participants, thereby reducing the growth of their retirement nest eggs.
- Reduced savings: High investment management expense may reduce net returns over time, resulting in lower balances.
- Economic volatility: A lack of diversification in the investment menu can make participants vulnerable to market downturns and other risks.
- Decision paralysis: Offering too many investment options can cause participants to feel confused and indecisive, leading to less-than-optimal investment choices and unintentional under-diversification.
The CBIZ Prescription for Success
Consider these best practices to maintain a healthy and effective retirement plan:
- Limit investment options: Consider offering a concise lineup, including target-date or risk-based funds, with minimal overlap to balance choice and simplicity.
- Follow an Investment Policy Statement (IPS): An IPS establishes clear guidelines for fund selection, monitoring, and replacement, promoting consistency and accountability in investment decisions.
- Conduct periodic investment reviews: Routinely compare your investment menu’s costs and performance to benchmarks and industry standards.
- Minimize and level revenue-sharing arrangements: This can help ensure cost allocation is fair and transparent for all participants.
- Consider outsourcing to an investment adviser: Consider the value of engaging a 3(21) non-discretionary adviser or a 3(38) discretionary manager depending on your needs. A 3(21) fiduciary can offer investment recommendations, while a 3(38) fiduciary has discretion to make investment decisions.
Looking for Investment Solutions?
A retirement plan review can help identify strengths, uncover gaps, and provide actionable recommendations to help you ensure a healthy retirement plan while fulfilling your fiduciary duty of prudence. Contact CBIZ to get your personalized, complementary benchmark assessment.
Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.