How Often Should We Review Our Investment Lineup?

Created by Kelly Knudsen, Modified on Wed, 14 Aug at 3:13 PM by Kelly Knudsen

Managing the investment lineup of your company's retirement plan is one of the most critical fiduciary duties you perform. But how often should you scrutinize the funds and options available to your participants? The short answer: at least annually [1]. But there's more to it than just marking a date on your calendar.

A thorough review of your investment lineup ensures that the plan continues to meet the needs of your participants, stays aligned with the plan's goals, and complies with fiduciary obligations. By consistently monitoring performance, fees, and fund selections, you safeguard participants' financial futures while minimizing the risk of fiduciary breaches [2].

An annual review serves as a baseline, giving you a structured opportunity to assess each fund's performance relative to its peers, benchmarks, and your plan's investment policy statement (IPS). Are the funds meeting their stated objectives? Are there options that consistently underperform? This is the time to identify any red flags, such as high fees or excessive volatility, which could erode participants' returns over time [3]. A systematic evaluation helps ensure that your lineup remains competitive, diverse, and cost-effective.

"Regular monitoring is also essential. A QDIA that is suitable today might not be the best choice five years from now. Set a schedule for periodic reviews—at least annually—and stick to it."

However, sticking to a yearly schedule doesn't mean you should ignore your lineup for the rest of the year. Interim reviews might be necessary in response to significant market shifts, economic changes, or new legislation that could impact your current investments [4]. For instance, a market downturn could reveal that some funds are more susceptible to volatility than anticipated. In such cases, a mid-year check-up can help you make timely adjustments, preventing losses and ensuring that participants' retirement savings remain on track.

Beyond market conditions, consider changes in your participant demographics. If your workforce is aging or becoming more diverse in terms of financial literacy, it might be time to reassess the risk profiles and educational support your plan provides [5]. This could involve adding target-date funds or managed accounts that automatically adjust risk levels as participants approach retirement. Alternatively, you might decide to introduce more educational resources or tools to help less experienced investors make informed decisions.

Finally, documentation is key. Keep detailed records of each review, including the rationale for any changes made to the lineup. This not only helps demonstrate your commitment to fulfilling fiduciary duties but also provides a clear record in case of an audit or legal challenge [1]. A well-documented process shows that you've acted prudently, with the best interests of your participants in mind.

In summary, an annual review of your investment lineup is a must, but don't hesitate to conduct more frequent reviews when circumstances change. Your participants rely on you to provide a robust, well-managed selection of investment options that will help them achieve their retirement goals. By staying vigilant and responsive, you can fulfill this responsibility with confidence.

For support in managing your fiduciary responsibilities, visit Fiduciary In A Box.

References:

[1] Stradley Ronon Stevens & Young, LLP. (2023). Fiduciary considerations: The qualified default investment alternative. Retrieved from https://www.stradley.com/-/media/files/publications/2023/10/fiduciary-considerations20230831.pdf

[2] Multnomah Group. (2021, January 28). 3 C's of QDIA. Retrieved from https://blog.multnomahgroup.com/forward-thinking/3-cs-of-qdia

[3] Russell Investments. (2019, June 24). Evaluating managed account performance. Retrieved from https://russellinvestments.com/us/blog/evaluating-managed-account-performance

[4] Vanguard. (2022, November 1). Finding the optimal rebalancing frequency. Retrieved from https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/tuning-frequency-for-rebalancing.html

[5] FinanceStrategists. (2024, January 23). Investment Lineup | Definition, Types, Factors, & Strategies. Retrieved from https://www.financestrategists.com/wealth-management/investment-management/investment-lineup/