Blog 4: Final Investment Review – Is Your Fund Lineup Performing?
Your plan’s investment options are one of the most important aspects of your 401(k) plan. Participants rely on these funds to grow their retirement savings and meet their long-term financial goals.
As the plan sponsor, it’s your responsibility to ensure the investment lineup continues to perform well and remains aligned with the needs of your employees.
A year-end investment review will help you evaluate fund performance, ensure diversity, and make necessary changes.
What to Look for:
Investment Performance
- Why it matters: Plan participants depend on your selected investment options to help them build wealth over time.
Funds that consistently underperform their benchmarks or fail to meet participant expectations may require replacement.
A year-end review is your opportunity to evaluate each fund’s performance and determine whether changes are needed. - Action step: Review the performance of each investment option in your plan. Compare their returns to appropriate benchmarks and assess whether they are performing in line with their peers.
If any funds have underperformed over multiple years, consult with your plan advisor to identify better-performing alternatives.
This will help improve participant outcomes and ensure you’re fulfilling your fiduciary duties.
- Why it matters: Plan participants depend on your selected investment options to help them build wealth over time.
Diverse Investment Options
- Why it matters: Offering a range of investment options is essential for meeting the varying risk tolerance and retirement goals of your employees.
A diverse investment lineup that includes a mix of asset classes (stocks, bonds, international funds, etc.) allows participants to create a well-rounded portfolio that suits their needs. - Action step: Evaluate the diversity of your investment options. Are you offering enough choice in terms of risk levels, asset classes, and investment styles?
Consider adding target-date funds, which automatically adjust asset allocation based on a participant’s retirement timeline.
Additionally, make sure the lineup includes both conservative and growth-oriented funds to accommodate a range of risk preferences.
- Why it matters: Offering a range of investment options is essential for meeting the varying risk tolerance and retirement goals of your employees.
Investment Policy Statement (IPS) Review
- Why it matters: Your IPS serves as a roadmap for how your plan’s investments are selected, monitored, and replaced.
It’s a critical document that helps guide your fiduciary decision-making process.
Regularly reviewing and updating your IPS ensures that it remains aligned with your plan’s current goals and investment strategy. - Action step: Review your IPS to ensure it reflects your current investment approach and fiduciary responsibilities.
If your plan has experienced significant changes in its participant base or investment lineup, you may need to make adjustments to the IPS to reflect these developments.
A well-maintained IPS is key to demonstrating your diligence as a fiduciary and ensuring the ongoing success of your plan’s investment strategy.
- Why it matters: Your IPS serves as a roadmap for how your plan’s investments are selected, monitored, and replaced.
Final Thoughts:
Conducting a year-end investment review ensures that your plan’s fund lineup is performing well and meeting the needs of your employees.
By evaluating fund performance, ensuring diversity, and reviewing your IPS, you’ll help set your participants up for retirement success.
If you need assistance with your investment review or want to explore potential changes to your lineup, I’m here to help guide you through the process.
Blog Series Conclusion:
The fourth quarter is the perfect time to take stock of your 401(k) plan and address any outstanding tasks before the year closes.
By focusing on compliance, plan design, fees, contributions, and investments, you’ll ensure your plan remains compliant, cost-effective, and aligned with the goals of both your company and employees.
If you need any assistance with your year-end checklist or have questions about any of these tasks, feel free to reach out—I’m here to support you every step of the way.
A diversified portfolio does not assure a profit or protect against loss in a declining market.