Is it important to do periodic reviews of the conservative options in our investment lineup, and if so, when should we evaluate those offerings?
Good question! It’s always a good idea to review your investment lineup regularly to make sure the options are performing in line with your expectations and investment policy statement, and that you’re fulfilling your fiduciary obligations to participants. There’s no time like the present to undertake a review of your plan’s conservative, or capital preservation, options.
Some participants may over-allocate toward conservative choices, thus sacrificing better returns, in exchange for a better night’s sleep. But investing too conservatively brings a different kind of risk, so plan sponsors are wise to educate participants about investment allocation in general — and to ensure they are offering quality investment options at all risk levels. Another reason to review your plan’s conservative investment options is new money market reforms that took effect in October 2016, involving liquidity fees and redemption issues that may impact participants. Further, considering that a best practice is periodic review of the plan’s investment structure, many DC plan sponsors are streamlining their investment menus and considering alternative options, in light of new regulations. The low interest rate environment, the evolving stable value landscape, and increasingly high profile fiduciary litigation are other factors prompting plan sponsors to re-evaluate their capital preservation options.
If you would like a complimentary Review of your company's 401K plan, please contact me.
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