As we near the end of our annual investment due diligence meetings for plan year 2024, I am reminded that the job we do is such a blessing. To be trusted with any employee’s retirement savings is a privilege, and we appreciate those who put their faith in us to do it well. If you haven’t had an annual due diligence meeting, that’s probably a reason to give us a call. These meetings should be held at least once a year to evaluate the funds in the retirement plan.

When we are out meeting with either clients or prospects, there are a variety of different investment perspectives and approaches. Ferreting out what makes the most sense for each client is a critical part of our service offering. While there are many variables in how it looks for each company, it all boils down to our investment approach and process. Below are a few highlights and best practices that we believe help pave the way towards solid participant outcomes.

Asset Class Coverage – If we are sitting in a room of 20 employees and ask the question “Who here likes to do their own investment research and create their own portfolios?” we typically see a small percentage (one or two) of hands go up. For these employees we believe that offering a variety of different investment options with broad market coverage is the best approach. Having access to both indexed and actively managed funds helps plan sponsors meet their fiduciary obligation of providing employees with a healthy, but not overwhelming menu to build their own portfolios.

Target Date Selection – Many employees are seeking a “hands-free” way to invest their retirement savings. A series of target dates funds is a great option for employees to access markets and be diversified in a way that lines up well with both their career and retirement time horizon. Many fund companies have these options, but they are not all built the same way. There are index options, active options, and some that blend both together. Some target dates series are more aggressive, while some may be aimed at minimizing volatility. Finding which option best suits your team is extremely important.

Model Portfolios – Some employees prefer to have a risk-managed approach to their investments. There are a variety of ways to access this service. Some fund companies offer these options as a stand-alone fund on the menu. Some (either a recordkeeper or a third party) will offer a managed account solution that’s either priced separately or included in their overall pricing. The Joseph Group builds our models on plans from the plan’s core menu of funds at no additional cost. This gives employees a managed account experience, but without additional fees.

Investment Selection Criteria – There are a lot of metrics that are reviewed each year in order to select and maintain a quality investment menu. While there is much more to the process, I wanted to highlight just a few of these that are important to remember.

1. Quantitative – How does this fund perform versus their peers? Do the expenses make sense for their category? Are you using the cheapest share class for that fund? How do risk adjusted returns compare?
2. Qualitative – How does this investment fit into the menu? Does the fund use and follow a defined process that makes sense for their category? Do the fund/portfolio managers have a long tenure of success?
3. Fiduciary – Is this fund a good fiduciary decision? Where have lawsuits come from when employees sue their employer regarding the company’s retirement plan?

Education and Monitoring – Most plan sponsors are not investment specialists and that’s okay. We believe that by educating our plan sponsors on “why” an investment fund is in the core menu, as well as what data points mean enables them to participate effectively in the conversation. As the funds are monitored throughout the year, a plan sponsor that has an understanding of the process and methods will be able to make solid fiduciary decisions. Whether the decision is to replace a fund, hold a fund, or add it to a watch list, we want plan sponsors to generally understand these decisions and the impact they may have on their plan and their team’s retirement savings.

We love to educate plan sponsors on both the investment process, as well as your fiduciary duties to your team. There is a lot that goes into planning for retirement, as well as operating a healthy retirement plan. Does your plan offer both indexed and active investment funds? Does your plan have multiple options such as models and target date funds for those who wish to have a managed approach to their retirement savings? Have you had an investment review meeting in the last 12 months? If you answered “No” to any of the above questions, reach out to us! The Joseph Group has an effective process we would love to share with you.

Written by Matt Kruckenberg, Manager of Retirement Plan Services. Matt can be reached at 614-907-8639 or matt.kruckenberg@josephgroup.com