Good 401(K) Fiduciary Practices Are As Simple As 1-2-3

by: Ronald Surz


1.Establish objectives.

2.Set up benchmarks.

3.Document everything in an Investment Policy Statement.

Last week Philip Murphy of Dow Indexes posted How Benchmark Selection Can Support A Retirement Plan's IPS, outlining the importance of having a formal Investment Policy Statement, and what that IPS should say. Most plan sponsors create an IPS for their total 401(k) plan, but few recognize the importance of writing a separate IPS for their default investment, which is usually a target date fund. Default investments are by definition employer-directed rather than participant-directed, so there is a higher level of fiduciary responsibility, especially the duty of care. The following are solid fiduciary practices:

  1. Fiduciaries are duty-bound to establish objectives for their TDF, rather than accepting the objectives foisted upon them by fund companies. Specifically, replacing pay and managing longevity risk are NOT objectives; they're mere hopes.
  2. Having established objectives, benchmarks should be set up to monitor progress toward achievement.
  3. Finally, the entire decision process, including objectives and benchmarks, should be documented in an Investment Policy Statement. Importantly, the statement should state the reasons that a particular TDF was chosen.

In case you haven't opened the hyperlinks in the above three points, they each expand in detail upon my recommended fiduciary practice; so please open them.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Tagged: Financial Advisors, Building Your Business
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here