The Importance of Periodically Reviewing Your Investment Lineup

As a plan sponsor, one of your key responsibilities is to ensure that the investment lineup in your retirement plan serves the best interests of your participants. But the task doesn't end with the initial selection of funds; it requires ongoing oversight and periodic reviews to keep your plan on track. Let's explore why these reviews are not just important but essential to maintaining a healthy, compliant, and effective retirement plan.

Keeping Pace with Market Changes

Markets are dynamic, and the investments that seemed ideal when you first chose them may no longer be the best options years later. Economic shifts, interest rate changes, and global events can significantly impact the performance of funds [1]. By regularly reviewing your investment lineup, you can identify funds that may have become too risky or are underperforming. This proactive approach allows you to replace or adjust those investments to better align with current market conditions, helping to safeguard your participants' retirement savings.

Aligning with Participants' Needs

Your participants' needs and preferences can evolve over time, influenced by factors such as demographic shifts or changes in retirement trends [2]. For example, as your workforce ages, they may prefer more conservative investments with lower risk profiles. A periodic review of your investment lineup can help you ensure that the available options reflect these changing needs, offering a balanced mix of growth, income, and stability that appeals to a diverse participant base.

Enhancing Diversification and Managing Risk

A well-diversified investment lineup is essential for managing risk and helping participants achieve their retirement goals [3]. Over time, certain funds may drift from their original objectives, or the overall diversification of the lineup may become unbalanced. Regular reviews allow you to reassess the diversification across asset classes, investment styles, and fund managers. This helps prevent over-concentration in any one area and reduces the risk of significant losses, ensuring that your participants have a robust and resilient portfolio.

Ensuring Cost-Effectiveness

Investment costs can erode participants' returns over time, so it's important to keep fees in check [4]. New investment options may become available that offer similar or better performance at lower costs. A periodic review gives you the opportunity to compare the fees associated with your current lineup against industry benchmarks and newer alternatives. By identifying and replacing high-cost funds with more cost-effective options, you can enhance the overall value of the plan for your participants.

Meeting Fiduciary Responsibilities

As a fiduciary, you're legally obligated to act in the best interests of your plan participants. This includes regularly monitoring the performance and appropriateness of the investments you offer [5]. Failure to review and update your investment lineup could expose you to potential legal and financial liabilities. By conducting periodic reviews, you not only fulfill your fiduciary duties but also demonstrate a commitment to maintaining a high standard of care for your participants.

Documenting the Review Process

Lastly, it's important to document your review process. This includes noting the criteria used to evaluate funds, any changes made to the lineup, and the rationale behind those decisions. Proper documentation provides a clear record of your fiduciary diligence, which can be crucial in the event of an audit or participant inquiry.

In conclusion, regularly reviewing your investment lineup is a critical component of responsible plan management. It ensures that your plan remains aligned with market conditions, participants' needs, and fiduciary standards. By staying proactive and making informed adjustments, you can provide a more effective and resilient retirement plan that helps your participants achieve their financial goals.

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

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References:

 [1] 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 

 [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] 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 

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