June 14, 2001 (PLANSPONSOR.com) - Only 1% of
retirement savers got full marks in an annual quiz on 401(k)
plans, which comprised questions ranging from benefits of
401(k) plans to contribution limits and penalties to
investment decisions.
JPMorgan/American Century Retirement Plan Services,
which conducted telephone interviews with 750 retirement
savers, found that survey respondents continued to struggle
with questions on contribution limits and benefits of
401(k) plans.
over 33% believed there is no annual maximum
contribution limit,
while another 45% of respondents didn’t know the
maximum annual contribution limit, and
In addition, 60% of the sample could not identify the
following as benefits of a 401(k) plan:
contributions lower taxable income,
retirement savings grow tax deferred, and
an employer match is offered by many companies.
However, 40% did know that penalty-free withdrawals are
not always allowed to cover education expenses.
Good Understanding
On the bright side, respondents demonstrated a good
general understanding of their rights as employees.
a little over 60% knew that plan participants are
responsible for making their own investment decisions,
although 17% thought it was the plan administrator, and
12% opted for the employer.
a third understood that an employer service charge
paid is not a consequence of taking an early cash
distribution from a 401(k) plan,
three-quarters knew that if their company went
bankrupt, employees’ 401(k) plan assets would be
safe,
likewise, 77% knew that their work supervisor could
not legally access their employee 401(k)
information.
In addition,
almost two-thirds of participants knew that the
amount of investment selections a 401(k) plan can offer
is unlimited.
close to three-quarters of those quizzed, knew they
could make contribution to both a 401(k) plan and an IRA
in the same year, up from 65% of respondents in last
year’s survey.
less than a third correctly answered that “investing
too conservatively” is typically one of the biggest
mistakes made by 401(k) participants (14% said it was
investing too aggressively).
May 2, 2002 (PLANSPONSOR.com) - This week we asked
readers, 'Do you have an investment policy for your defined
contribution plan? And is it worth the paper it's printed on
in terms of guidance?'
While the rate of response was a bit short of the
‘normal’ pace, we were pleasantly surprised to hear that
nearly 87% of our survey respondents have an investment
policy. One satisfied ‘customer’ said,
‘We do have an investment policy for our 401(k) plan
developed by our attorney, consultant and committee.
We do follow its guidelines, in fact, we are considering
investment option changes based on the criteria established
in the policy. However, the most important thing
writing the policy accomplished (other than affording the
company some protection from DOL audits and participant
lawsuits) was bringing together members of senior
management to formally review the performance and operation
of the plan on a strict quarterly basis.’
However, probably half of the 13% currently without one
would change that, if it was up to them, according to the
responses. One summed it up nicely,
‘We have an unapproved DC investment policy which is
too general to be of real use. Some people (like me)
feel there should be more detail and others want to keep it
general to allow flexibility. I will be working on
this more this year.’
‘Yes we have an investment
policy and its written on paper.
It provides guidance best
when its folded into an airplane.’
Nearly two-thirds of our respondents said that the
investment policy in place for their defined contribution
plan was a valuable, if not integral tool, in their
management of the plan’s investments. However, a
number of readers seemed to feel trapped between a policy
that was too general to be of real use – or one that was
too specific for the comfort of their legal counsel.
For example,
‘Investment policy has been in “draft form” for over a
year. Model policy from recordkeeper/investment
manager was too detailed, according to our
lawyers.’
And, as another noted,
‘The “policy” was simply a form letter provided to us
by our plan provider. We simply put the number of
funds we offer in the plan, put our name on the top and had
its approval buried deep within a Board of Directors
resolution somewhere. Any substantive information and
guidance we need we get directly from our plan provider
(that is why we are paying all of those fees
right?!)’
However, of those who took the time to respond, handing
out minutes to plan participants is a notion whose time has
not yet come.
Oh, and I would be remiss if I didn’t share this week’s
EDITOR’S CHOICE
:
‘Yes we have an investment policy and its written on
paper. It provides guidance best when its
folded into an airplane.’
Thanks to everyone who participated in our
survey!
Editor’s Note:
If you’ve got either a sample investment policy or some
suggested criteria for same, please email them tonevin.adams@plansponsor.com(or drop me a note for other delivery options).
We may feature some of the best on the site – or in a
future issue of PLAN SPONSOR magazine.
The question was: Do you have an investment policy
for your defined contribution plan? And is it worth the
paper it's printed on in terms of guidance?
THE VERBATIMS
We have just re-created an investment policy, with real
fund performance screens (quantitative and qualitative). We
hired an independent firm, out of St. Paul to help us with it
and to review our plan's fund line up. As they don't manage
money, but consult to companies with DC plans, their insight
was unbiased.
It has been a great experience and very worthwhile for our
participants. We won't provide participants with minutes of
trust committee meetings, but do expect to give them updates
or summaries where appropriate.
we are in the process of writing one. We have not
discussed yet whether or not we will provide it to
participants.
We have an unapproved DC investment policy which is too
general to be of real use. Some people (like me) feel
there should be more detail and others want to keep it
general to allow flexibility. I will be working on this
more this year.
Our Company has an Investment Committee that is comprised of
Board members. Minutes are not provided to
participants.
In these wild times of distrust among participants you
absolutely must have an Investment Policy Statement.
Without guidelines as to when to hire or fire managers in a
defined contribution plan you are inviting lawsuits and
participant discontent. You can never satisfy 100% of
the participants but to leave the door open to interpretation
on such matters is insane.
Yes, our DC plan has an investment policy. It is
reviewed and used for guidance. We have an
Investment Committee as well that meets once a quarter.
No, but it's under consideration.
We do have an investment policy for our 401(k) plan developed
by our attorney, consultant and committee. We do follow
its guidelines, in fact, we are considering investment option
changes based on the criteria established in the
policy. However, the most important thing writing the
policy accomplished (other than affording the company some
protection from DOL audits and participant lawsuits) was
bringing together members of senior management to formally
review the performance and operation of the plan on a strict
quarterly basis.
We do not, as a matter of course, share the policy or minutes
of the meeting with participants, but probably would if a
participant asked. I have mentioned in meetings with
participants that a policy and formal review exists and is
taken quite seriously by senior management.
We have an investment policy. We review our funds every
quarter but we do not distribute the policy or minutes to
participants.
Yes we have an investment policy and its written on
paper. It provides guidance best when its folded
into an airplane.
As a service provider, we offer our clients an investment
monitoring service that forms the core of an investment
policy. We seek out mutual funds that meet the policy
criteria, which usually requires that the plans offer
multiple styles, multiple families and multiple managers
which outperform their peer funds. This diversification
comes at a cost, and I don't think most clients small to
mid-size clients are willing to pay it or understand its
value. Most plans, esp small ones, select from the
funds offered and have no idea of how the funds rank relative
to other similar funds. To me, this is much more
critical than daily valuations and internet access, but gets
less attention in bundled products. DB plan sponsors
and larger DC plans select and monitor their managers with
the policy, so it stands to reason that their performance
should exceed smaller DC plan participants.
I encourage my clients to write investment policies and give
them sample forms to follow. It has gotten a great deal
easier to get them to do it since Enron!
Regarding investment policy statements. I had one in my
last firm & found it very helpful as a guiding tool for
the investment committee. We are working on one with my new
firm. I believe they can guide the decision makers in
an objective manner.
We do not have an investment policy for any of our
plans. We have one 401(k), one money purchase and three
DBP's. Every employee is covered by the 401(k), there
is no matching there but the company makes contributions to
either a DBP or the money purchase plan on each employees
behalf depending on which group they belong.
There is often talk about the day of establishing an
investment policy. To date there is none on any of
them. The culture here is a little timid about actively
managing and keeping all benefits more living in nature
rather than stagnate. There is a small group trying to
get the authority types to take this more seriously as it is
an area we feel we can get some positive thoughts on from the
participants.
I understand the importance of investment policies and
keeping up with market trends on the plans and would love to
that happen. However until the responsibility and
authority are better coordinated I prefer the stagnant plan
that was a little outdated the day it was installed.
Yes, both our plans have investment policies.
It is a struggle to get the Policy making body to revise
it before they make changes to the rest of the plan.
However it is helpful to explain to interested parties why
the Plans are structured the way they are.
This past year we drafted and approved an "investment
policy" for our 401(k) and Executive Deferred Compensation
Plan. Fortunately, it was immediately filed never to be
looked at again, as its only real purpose would be in the
event our entire company was fired and the new employees
needed to reestablish the retirement accounts.
The "policy" was simply a form letter provided to us by
our plan provider. We simply put the number of funds we
offer in the plan, put our name on the top and had its
approval buried deep within a Board of Directors resolution
somewhere. Any substantive information and guidance we
need we get directly from our plan provider (that is why we
are paying all of those fees right?!)
Seeing as there is no real relevance, there is no purpose
to distribute it to the masses and we chose not to (not that
they would read it anyway, and the two or three that would
find some question to ask us therefore bothering us with
unnecessary phone calls, e-mails and letters).
Yes, we have an investment policy. The policy is very
comprehensive including fund selection guidelines, fund
performance criteria, policy revision guidelines, etc.
We report to our Employee 401(k) Committee quarterly
regarding policy compliance, with a primary focus on
performance
criteria (fund performance versus index and peer group).
Yes, we have a written investment policy. A copy is
provided to all who are eligible to participate in the 401(k)
plan. It basically is a protection for the company
because it states that the participants are responsible for
their own investment choices. We make this clear to all
the participants. They do not get copies of investment
review meeting minutes. However, in the case of any
changes, they are informed well in advance.
Yes and the investment committee does use the investment
policies to guide decisions
We do have a written investment policy for our Defined
Contribution plan. No one ever looks at it. In my
opinion, the only purpose it serves it so that we can say we
have one.
Yes, we have a written investment policy for our defined
contribution plan. It defines the funds that we offer
and benchmarks that we measure the performance
against. Is it worth the paper it is written on?
Probably.
We do not have an Investment Policy statement for our DC
Plan. All the consulting houses seem to be pushing them but
the other members of the committee, all lawyers, are against
establishing one. No participant has asked for one so we'll
leave it alone for now.
Most of the time, NO. The investment policy is an agreed upon
asset allocation between the plan sponsor and the
Trustee/Investment Manager. It is usually outlined in a
letter but not always. This asset allocation is reviewed
annually to make sure it still is in line with the ages and
expectations of the plan sponsor and the participants.
We encourage, advise investment policies. Most of the
banks I have worked for in the past required that we keep a
current signed copy of the investment policy in our plan
document files.
Our plan does have an investment policy and it is
monitored. The policy is not provided to
participants nor are the minutes. The investments are
reviewed each quarter.
we have investment policies for both the Defined Benefit and
Defined Contribution Plans. They are actively adhered to.
When we were switching investment advisors, more than one
said they would not work with us unless we had such a policy.
I think it is a critical component to my fiduciary
responsibilities
Yes, we have an Investment Policy for our defined
contribution (401k) plan, and it is worthwhile. As a
member of our plan administrative committee, we often refer
to it when reviewing the performance of our investment
options. From time to time, we modify the policy to
reflect changes in strategy, but nothing significant.
Following Enron, I sense many committees are reviewing their
policies, and altering as appropriate.
We have an investment policy for our $100 million 457 plan,
it was provided by our TPA.. It was provided after the plan
was established.
No we do not have an investment policy in place for the
401K. Since it is employee driven we feel it is not
appropriate for the company to set the policy. However
we have a process in place used to review the plan,
performance and its options offered.
Strange - As it happens we just completed the process of
developing a written investment policy for one of our 403(b)
DC plans. This is an employee-funded, participant
directed retirement investment plan with more than 100
specific fund options. The stated purpose of the
document is to tell participants that the sponsor claims some
shield from fiduciary responsibility under ERISA
§404(c).
The intent of the plan sponsor is to make the range of
investment options as broad and flexible as possible.
This creates some conflict because the document promises, and
§404(c) requires, some screening of the specific fund
options, and considerably more participant communication than
current. Having made this commitment, we must now
figure out how to manage this.
While the policy document includes the text necessary to
comply with §404(c) (e.g., a range of investment options from
relatively low to high risk/return, relatively easy access
for participants to "manage" their accumulation, etc.), I
wouldn't bet my retirement that this would stand judicial
scrutiny. This document will serve as a draft for
investment policies for our separate-division,
employer-funded 403(b) plans. We intend to include the
policy in the SPDs. There is no intent to communicate
minutes of the committee charged with deciding which specific
funds to offer.
Our company has an investment policy, it:
does a great job of detailing the investment guidelines
for separately managed accounts in which we are involved
provides a general description of the retail funds we utilize
and over which we really have only the ultimate discretion
details the minimum entry requirements for our consideration
of any investment, years in operation, min assets,
commitment to 401(k) industry, etc
lays out a performance review process and procedures for
terminating under performing managers
We also have used the same document as operating guidelines
with input from various disciplines, governing body,
investment staff, human resources, legal, record keeper,
custodian that set forth "rules of engagement" and explain
roles and responsibilities.
It is not perfect, but it is an often referenced document.
Investment policy has been in "draft form" for over a
year. Model policy from recordkeeper/investment manager
was too detailed, according to our lawyers. We're
not-for-profit --- no stock, which is good in this
case. We do a formal portfolio with minutes annually.
yes we do have an investment policy and it does provide
guidance with the help of an Investment advisor. We do
not share the policy or minutes with participants.
However, we do inform them that we do review the investment
options with the help of an Investment Advisor and make
changes as appropriate.
I've been recommending for the last 3 years that an
investment policy be developed for the company's defined
contribution plans. We have a policy for the defined
benefit plans but the Investment Committee does not see a
need for one for the DC plans.
We do have a written investment policy and it's requirement
that offered funds must perform in the top 50% of their peers
has been followed over the past four years.
We have a policy and no we don't provide it or minutes from
the Committee meetings to participants. An interesting
idea, will be interested in what others say and will give
some thought to it for our organization's future.
We have a well-defined Investment Policy for our DC plan and
it is definitely worth the paper it is on. It is a great tool
for us.
Here are the elements we typically include in a client's
401(k) Plan IPS:
Components of an Effective IPS
Evaluation of plan and participant needs
Statement of investment objectives and goals
Standards of investment performance/benchmarks
Classes and styles of investment authorized
Diversification within and among investment classes and
investment styles
Restrictions on investments
Reporting procedures, including standards for reporting: a)
investment performance,
buffers and commissions charged to the plan, the participants
and the plan sponsor;
c) compliance with investment guidelines, d) disclosure of
actual and potential conflicts of interest.
Procedures for hiring and monitoring investment managers and
other
service providers
Procedures for identifying prospective investment managers
and/or
administrative service providers
The IPS is typically only provided to participants at a
participant's specific request. Committee minutes are not
distributed, except in the case of public sector plans that
are subject to open meeting laws.
We find a lot of value from the IPS guidelines, because we
can focus our review time on only those funds that are not
meeting the IPS guidelines. This really streamlines the
committee meetings, because most of the time, most funds meet
the IPS guidelines, so we typically only have one or two
funds that need a closer review.
We have just implemented a written policy. It's full of
apple pie and common sense, so it's mainly of value to bring
new committee members up to speed. We would be glad to
provide it to any member who's interested (but don't expect
any to express interest.)