We’ve reached the halfway point of the year, which is a perfect time for plan sponsors to review workplace retirement plans and make sure the annual goals of the company’s investment committee are on track for completion by the end of the year.

Richard Torbinski, partner and co-founder of Portfolio Evaluations, Inc. in Warren, N.J. — an independent consulting firm that advises plan sponsors on their defined contribution and defined benefit plans — devised an eight-point checklist for defined contribution plan investment committees to follow at their mid-year checkup.
1) Educate the committee about its fiduciary responsibilities.
“Everything in consulting is related to education. When you have an investment committee, sometimes there is turnover,” said Torbinski. “Even if there isn’t turnover, people appreciate a one-year refresher.” That means educating the committee’s members about what it means to be on the committee, what their decisions mean and the documentation and records they need to keep about their decision-making so that if something does go wrong with the plan, it is clear why certain decisions were made. Most investment committees are made up of people with different backgrounds: HR, finance, operations or manufacturing who are not very knowledgeable about these topics so a mid-year refresher about fiduciary duties is important, he added.
2) Revisit your plan documents.
Torbinski recommends that investment committees review their investment policy statement and committee charter at least once a year. Rules change and new investments come online every day so it is important to make sure a plan sponsor’s documents reflect those changes. There has been a lot of litigation in recent years alleging fiduciary misconduct and these cases impact how plan documents are organized. He believes the review should be handled by the committee or by an adviser or attorney who is well-versed in the industry’s changes. It is always a good idea for committees to “read it once a year and stay committed to that,” Torbinski said.
3) Be aware of Money Market Reform changes coming in October.
Any retirement plan that offers money market funds in their investment menu needs to be aware that under the new rules, which go into effect Oct. 14, 2016, institutional prime money market funds are required to use a floating net asset value (NAV), which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools — liquidity fees and redemption gates — to address market runs, according to the Securities and Exchange Commission. There are other money market funds that will not have a floating NAV. These will be more conservative and won’t have as good of a yield as they did in the past, he said. “Committees need to ask themselves, are they willing to be in a fund with a floating NAV or should they go with a government fund?” Many people don’t like the volatility with a NAV. That is why the committee’s decision is so important, Torbinski said.
4) Revisit your plan’s fees.
Torbinski calls it reaffirming a plan’s fee philosophy. There are many ways to apply fees because technology has changed a lot, he said. Investment committees have to do their due diligence and make sure that the fees they are being charged are reasonable and they need to document how they benchmarked their fees. It isn’t a matter of always choosing the lowest cost option, he said, but documenting why you made a particular decision. It isn’t enough to accept a record keeper’s free benchmarking report either, he said. Committees have to do their own legwork. Fee disclosure rules went into effect in 2012 that lay out how plan providers and plan sponsors must disclose their retirement plan fees and recent Supreme Court decisions, including Tibble v. Edison International, found that plan fiduciaries have a “continuing duty to monitor investments offered under a qualified defined contribution plan,” Torbinski said.
5) Audit the plan’s investment menu.
“I think most plans today are doing a good job of reviewing their investments on a regular basis,” Torbinski said. They have performance metrics in place. In the past few years, investment lineups have shrunk so that participants have an easier time choosing which investment options match their risk tolerance. It is important that DC plans offer “at least three investment alternatives, each of which is diversified and has materially different risk/return characteristics,” Torbinski said in his written assessment. Many plan sponsors do conduct a thorough review of their investment lineup every year. This type of analysis helps “educate committee members on investment menu trends, both from industry sources and the perspective of similar-sized plans, and should summarize and outline behavioral finance studies that support certain investment menu structures,” he wrote. This deep analysis helps plan committees to refine their investment lineup by adding new options that meet their plan goals and discarding overlapping or underperforming investments.
6) Evaluate your plan’s target-date fund.
Target-date funds have quickly become the most popular investment choice in many defined contribution retirement plans. Even though target-date funds are actively managed by plan providers, the plan sponsor and investment committee have an obligation to reassess their TDF offering to make sure the model it follows meets the plan’s overall retirement readiness goals. That means constantly evaluating the investments to see if they are too conservative or aggressive, active or passive and what the underlying holdings include. Glide paths vary by fund, so it is also important to know if a fund’s glide path fits the plan’s overall goals as well. TDFs are qualified default investment alternatives but just because they fit this category doesn’t mean plan sponsors abdicate their fiduciary responsibility to monitor them and ensure they are performing reasonably, Torbinski said.
7) Perform due diligence on any managed account services.
Many 401(k) vendors offer managed account services to plans for small or no fees, so it is important that investment committees conduct “proper due diligence when examining the qualifications, experience and process of the managed account offering,” Torbinski wrote. It is also important to note that plan sponsors should not just blindly accept their current 401(k) vendor’s managed account services option. Instead, they should compare the managed account services offered on different platforms as well, he said.
8) Review the fiduciary rule with your plan’s service providers.
The Department of Labor finalized its conflict of interest rules in April 2016, making it imperative that plan committees take a hard look at all of their service providers to make sure the advice they are giving is in the best interest of the plan and plan participants. “This impacts vendors more than anyone else,” Torbinski said. Fee-only advisers won’t have to change their business model to comply with these rules, but broker-dealers who advise workplace retirement plans will have to make some changes, he said. “Plan sponsors who have advisers who are also broker dealers that have arrangements to generate revenue in the plan, they have serious things to examine in how they operate moving forward,” Torbinski said. Plan sponsors and investment committees have a fiduciary duty to make sure the advisers they are working with are properly performing their duties. “This is a wakeup call to plan sponsors who don’t know who their adviser is or what their business model is,” he added.