Portfolio

Choosing Investments

The plan document must identify who selects the investments and what the permissible investments are for the plan.  Decisions on plan investments may be made in any of the following ways: (1) the employer selects the investments. (2) the employer authorizes the plan trustee or investment advisor to select the investments. (3) the employer selects, for a certain number of options. (4) the employer allows participants to direct their contributions to an investment of their choice.

Defined Contribution plans

Remember, in defined contribution plans investment performance does not affect the contribution amount. The investment performance only affects the benefit available at retirement.

Permissible Investments

Many products are appropriate to fund a retirement plan. Common investments include:  mutual funds, common trust funds(offered by banks and trust companies, life insurance, stocks, bonds, certificates, ETFs, certificates, limited partnerships real estate, and annuities.  Contributions must be separated from the general assets of the employer and be deposited to, and owned by, a plan trust for the exclusive benefit of the participants.

With defined contribution plans, while the amount contributed is clear and easy to understand, the amount the employee will receive at retirement is not known ahead of time.  However, these plans are very flexible and depending on your retirement asset structure, you can design a retirement plan that combines qualified and non-qualified plans together.

Fiduciary Responsibilities

The individual who makes the investment selection is considered a plan fiduciary. There can be more than one plan fiduciary for a given plan. Fiduciaries are responsible for:

  • acting solely in the best interest of plan participants and beneficiaries
  • acting exclusively for the purpose of providing plan benefits to participants
  • following the prudent person standard
  • acting in accordance with the plan documents.

Fiduciary standards related to plan investments include:

  • developing a statement of investment policy
  • diversifying plan assets
  • monitoring and controlling investment expenses
  • deciding on investments with skill, care and prudence
  • monitoring investment performance