PLANSPONSOR - December/January 2021 - 34

ADMINISTRATION & GOVERNANCE | INVESTMENTS
be offered to the participants,' " says
Ungerman. " But then those details are
explored by the committee itself, while
the IPS stays at a higher level. The IPS is
hard to apply if it's too formulaic. "
" The more specific issues can be
handled within the investment committee
and memorialized in the meeting
minutes, " says Ashton.
Ninety percent of changes tend
to be of a housekeeping nature, swapping
one fund for another, or changing
a benchmark or peer group, Ungerman
points out. " Those can be recorded in the
minutes or an appendix, so you are not
changing the IPS itself. "
Investment policy statements can
be helpful in bringing new committee
members up to speed. " I've had clients
that have done significant mergers and
acquisitions [M&As], and the composition
of committees can change quickly, "
Ungerman says. " The IPS can be helpful
to pass the decisionmaking framework
down to a new group that has not come
together before. If the policies and procedures
have been well-vetted, a plan can
continue to offer a sound process. "
" One thing that does not exist in
the marketplace is training on fiduciary
responsibilities, " McIlveen observes.
" People on committees are changing
all the time, and we have put together a
curriculum on fiduciary responsibility.
It's rare that someone arrives with an
understanding of good plan governance,
and our training process has teeth in it. "
Spare the Details
Experts suggest that plan sponsors review
the IPS annually. And everything needs
to be squared up, Ungerman says. " What
a committee puts in writing should be
reviewed by internal or outside legal
advisers, and changes to the IPS should
be synced up to the [meeting] minutes to
provide a documented track record that
you are following the IPS. "
Still, there are turning points for
policy and regulation. Many IPSs were
updated a dozen or so years ago to
address the arrival of target-date funds
(TDFs) and their acceptance as a plan's
qualified default investment alternative
(QDIA). " TDFs started getting a lot of
attention, and when the DOL brought out
its soft guidance, that led to the updating
of a lot of IPSs for how to look at [the
funds], " Ashton says.
Should plan sponsors be addressing
current developments such as environmental,
social and governance (ESG)
investing, or the long-term underperformance
of value equities vs. growth,
or the debate over active vs. passive
management?
" Generally speaking, an IPS would
not go into that level of detail, " Ashton says.
" For ESG, for instance, you would have to
look first at whether the investments are
prudent on their own, and then address
the DOL's guidance on ESG investing, and
then apply the ESG principles.
" But the contrary point I would make, "
he says, " is that, unless there's a strong
interest on the part of the committee or the
sponsor to offer certain investments, my
position would be to not address au courant
issues within the IPS. "
A possible exception is retirement
income products, Ashton says. " That may
be a watershed. It's an extremely important
aspect of the plan, and people need
help [with it]. "
He suggests designating retirement
income solutions as a " settlor decision " -
that is, arrived at by the sponsor and
included in the plan document. But the
sponsor leaves the decision of what type
of retirement income, and which specific
product, to the investment committee-
all documented in the IPS and minutes.
-John Keefe
Turn Over the Keys
ALONG with the addition of retirement income products, a significant development
in governance is sponsors' greater reliance on outside Section 3(38)
advisers to select and monitor investment managers and products. The 2020
PLANSPONSOR Defined Contribution (DC) Survey found that smaller plans
appear more open to 3(38) fiduciary services. Thirty-seven percent of survey
respondents with $100 million or less use these services. Plan sponsor
respondents with more than $100 million use these services at a rate of 19%.
" I'm finding that fewer and fewer sponsors are interested in doing their own
manager selection and monitoring, and want to turn over the keys to someone
else, " says Ed McIlveen of Francis Investment Counsel LLC. " In years
past, firms had a CFO [chief financial officer] or treasurer who was heavily
involved in the investment process, but that doesn't seem to be the case as
frequently anymore. "
In such a circumstance, the sponsor may have given over the details of
manager selection to a third-party fiduciary, but it is still up to the sponsor
to prudently select and monitor the fiduciary investment manager. " The
appointment of a 3(38) should be addressed in the IPS [investment policy
statement], " says Bruce Ashton of Faegre Drinker Biddle & Reath LLP, " but the
IPS should still reflect the investment strategy the plan will pursue.
" This is a best practice for two reasons, " he adds. " First
is to provide the
adviser with guidelines on the plan's overall investment strategy and how
to select investments. Second is to give the investment committee a standard
for monitoring the 3(38) adviser-whether he's doing his job by following the
IPS, or if he's deviating, it's for valid reasons. " -JK
34 PLANSPONSOR.COM December 2020 - January 2021
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PLANSPONSOR - December/January 2021

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