Investment Insights: Four Questions Your 401(k) Committee Should Ask

5/17/2016 - By George Johnson

Plan trustees — or another group of employees designated as a 401(k) committee — should meet at least annually to discuss plan business, though quarterly meetings are strongly encouraged. Typically, this group will have representatives from HR and the finance department. In smaller companies, the owners or principals will attend. 

Whether formal or informal, this committee should be asking four basic questions:

1. How are plan investments performing? By evaluating investment performance and expenses using quantitative due diligence criteria — such as total returns, risk-adjusted returns and expense ratios — the committee can compare these factors to industry benchmarks. Any out-of-the-norm investments can be placed on a “watch-list,” and plan management can decide whether action is needed to remove or replace poor performers. 

2. What do the internal control reports say? The committee should obtain and review internal control reports (SOC 1 or SSAE 16) at least annually to effectively monitor the control environment of the plan’s third party service providers. The committee should review the user control considerations and confirm that the plan sponsor has addressed them. If any control deficiencies are identified, plan management will need to consider any impact on the plan and whether an inquiry to the service provider is warranted. 

3. Is there anything on the regulatory horizon? Specifically, will any current or pending legislation, accounting change or regulation impact the plan and its participants? If so, are any plan amendments necessary?

4. Is the plan meeting its ultimate goal? The overarching goal of any retirement plan is to provide adequate retirement savings for workers. A 401(k) committee should consider reviewing participation statistics, investment concentrations and fund offerings to assess whether this goal is being met.

Having a 401(k) committee enables plan sponsors to ensure that there is a process in place for making decisions that are in the best interest of participants. 


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