PLANSPONSOR - October/November 2019 - 28

STRIKING THE RIGHT IPS BALANCE
Good investment monitoring starts with a good IPS. " The
investment policy statement is not required by law, but it
establishes the framework of your entire process, " says Jay
Laschinger, national practice leader and senior vice president at
Alliant Retirement Consulting in Alpharetta, Georgia. " It sets
the tone for, 'What is our overall game plan for the ongoing
selection and monitoring of investments [among other important
plan guidelines clearly outlined]?' "
The IPS should strike the right balance as to stipulating the
committee's decisionmaking process. " It should give information
on the types of things that may be considered, but not be too
specific, " says Mark Wetzel, president of Fiduciary Investment
Advisors LLC in Windsor, Connecticut. " If it's too specific, you
can push yourself into a corner as a committee. One of two
things can happen: You'll make too many changes because the
IPS is too specific about when you'll make a change, or you won't
make a change when the IPS says you should, and that will put
you in a vulnerable position as a fiduciary. "
Laschinger concurs about specificity. " We don't suggest
the IPS say that you'll have only funds in the top third of their
peer group for performance in the one-, three- and five-year
periods, for example, " he says. " If you do that, and if a fund
has a poor-performing quarter and drops out of the short-term
top one-third versus its peers, you've exposed yourself as a
fiduciary. " Instead, he recommends that the IPS indicate the
general investment-evaluation considerations such as performance
vs. a benchmark; risk taken vs. peer funds; manager
tenure; and fees, among other potential evaluation metrics.
Advisory firm PlanPILOT LLC, in Chicago, likewise, recommends
against mandating specific timing to replace a fund, says
Managing Director Mark Olsen. " We want to shy away from
language that's so rigid about a decision having to be made. We
approach that issue by having softer language in the IPS, " he
says. " We define it as a six-month review process, once the fund
goes on the watch list. We also say in the IPS that during the sixmonth
review, the committee will decide to remove and replace
that fund or, upon additional analysis, continue to keep it on the
watch list and monitor it. "
Along the same lines of what the document should say, an IPS
should mention any additional considerations used to evaluate a
plan's qualified default investment alternative (QDIA), Lyday says.
" I think most sponsors lump in the QDIA evaluation with the
overall investment menu, and they don't do a separate evaluation.
From my perspective, it's actually a requirement to do a separate
evaluation, because it's a very different fund selection and monitoring
than the rest of the menu. And a QDIA usually has a disproportionate
percentage of participant assets. "
There are many sample IPS versions online with varying
suggestions. (For an example of a topic list, see page 30).
GETTING AN ADVISER'S ADVICE
For plans that work with a 3(21) fiduciary adviser-who makes
specific investment recommendations, but does not take discretion
for the actual investment decisions-monitoring investments
is a partnership between the adviser and committee.
TDFS NEED SPECIAL MONITORING
THE SELECTION of a target-date fund
(TDF), whether or not it is chosen as the
plan's qualified default investment alternative
(QDIA), merits additional scrutiny and
language in the plan's investment policy
statement (IPS), experts say. " For plan
sponsors, however, evaluating and monitoring
asset-allocation portfolios-and
target-date series in particular-carries
special challenges, " says recordkeeper
Newport Group in a white paper titled " A
Prudent Approach to Evaluating TargetDate
Funds, " released in September.
You should not monitor your plan's
target-date funds in the same way you
do other investments, cautions Paul
D'Aiutolo of D'Aiutolo, Malcolm &
Associates Investment Consulting Group
with UBS Financial Services.
Altering your approach to meet
the requirements for a target-date fund
suite begins with allowing for additional
language in the IPS. A sample investment
policy statement from fi360, a provider
of fiduciary-focused software, data and
analytics for financial advisers and
intermediaries, includes the following
language, which the firm follows with a
list of all of the TDFs offered in the plan:
" ... In addition to the asset classes listed
above, the committee has selected the
following target-date classes. In addition
to serving as the QDIA, target-date funds
offer participants the opportunity to
28 PLANSPONSOR.com October - November 2019
choose the diversified fund appropriate to
their planned retirement date. [Because]
each of these funds comprises multiple
asset classes and may change [its] allocation
mix to meet its stated goals, there are
no corresponding capital markets input
data or correlation estimates for them. "
The complexity of finding a market
benchmark for target-date funds and
asset-allocation vehicles is corroborated
by multiple experts. " Ideally, an investor's
success in achieving [his] retirement
goals would be a key component in the
evaluation process [of target-date funds], "
wrote Newport Group. " However, not
only do investor goals and expectations
vary greatly, these strategies are also too
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