PLANADVISER - May/June 2021 - 20

investments | cover story
far, far away. The world has gotten more stable in terms of
design and framework than it was in the past. "
" There's been a big trend toward rationalization, consolidation,
debranding and institutionalization of plan menus, "
observes Holly Verdeyen, head of defined contribution (DC)
at Russell Investments in Tacoma, Washington.
While the modern plan menu can vary significantly,
depending on the goals of the plan sponsor and the demographics
of participants, trends such as those cited above
shape the way employers and advisers now think about plan
menu design fundamentals. Sources discuss the biggest of
the trends:
Methodical Fund Evaluation
The key to developing and maintaining the best plan menu
for participants, advisers say, is to create a strong investment
policy statement (IPS), laying out in detail the criteria
the sponsor will use to choose new funds or eliminate
existing ones.
The Employee Retirement Income Security Act (ERISA)
does not require plans to have an IPS, yet having one is a
best practice from a fiduciary perspective and gives the plan
sponsor and adviser a framework they can refer to, says
Mike Geraci, senior product manager, retirement consulting
investment services for Commonwealth Financial Network
in Waltham, Massachusetts.
" We suggest to any of our advisers or plan sponsor clients
that if they don't have an IPS in place to meet with the
committee and establish one, " Geraci says.
Of course, once a plan sponsor creates an IPS, it is imperDisplay
Options Clearly
Constructing a menu with the right investments and framing helps all participants understand
their options and allows them to select a choice or path that most appeals to them.
Decisionmaking Spectrum
Investment
menu
nomenclature
DO-IT-FOR-ME
* Pre-mixed diversified
portfolios
* Hands-on level: LOW
* Tier 1
DO-IT-WITH-ME
* Pre-mixed diversified
portfolios
* Hands-on level:
MEDIUM
Investment
options
included
* Target-date funds
Source: Invesco, " Watch Your Language "
* Tier 2
* Target-risk funds
DO-IT-MYSELF
* DIY mix options
* Hands-on level: HIGH
* Tier 3
" The TDF is the crown
jewel of the defined
contribution plan, and it's
where most participant
assets are held. "
ative that the committee follow it and document the process
of doing so. Having good processes and documentation in
place will guide plan sponsors to an outcome and actually
make it easier to reach decisions, Shamburger notes.
The Evolving Target-Date Fund
Since the Pension Protection Act of 2006 (PPA), target-date
funds have steadily grown as not only the default option
for employees automatically enrolled into a 401(k), but also
as the go-to for plan sponsors trying to choose a qualified
default alternative investment (QDIA). Last year, 75.9% of
employers used a TDF for that purpose, up from just 66%
in 2017, according to research from the PLANSPONSOR DC
Survey.
Still, while plan participants might be happy to " set it and
forget it, " plan sponsors and their advisers are continuing to
find ways to tweak and adjust target-date funds to better
meet these employees' needs.
* Single asset class
options
20 | planadviser.com May-June 2021
http://www.planadviser.com
PLANADVISER - May/June 2021

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