The following post was written by AIFA designee Lyle Kearns. It is an interesting situation in which he seeks input from you, his peers, in how best to approach a specific retirement plan transition. If you have any thoughts, please leave them for all to see by clicking the "Comments" link below the post. This is the first post written by a designee on the fi360 Blog. It is a great example of how we would like to make this blog a valuable resource available to all AIF/AIFA designees. If you would like to write a post like this one, or of interesting insights you have to offer, let me know by emailing blog@fi360.com to request access.
Retirement plan transitions can be tricky enough in the best of times but with the market down roughly 40% there are some additional issues that arise. Now consider a plan in which half of the assets belong to retired participants and a significant number of them are holding 100% equity portfolios.
Our firm is working with a new client to help improve their $20 Million 401(k) plan. Over the last year we have worked closely with management to educate them about the retirement plan industry and their fiduciary responsibility; we have also conducted multiple participant surveys and focus groups as well as informational meetings. Most recently we have completed an RFP process and helped the client select a new bundled retirement plan provider (they previously worked with a regional record keeper that provided no education or advice). The new vendor will take over the plan on March 31, 2009.
This plan was a trustee directed plan for years and the trustees had placed all the assets with one money manager who ran a US equity multi-cap value strategy. For the last ten years the manager did a terrific job and posted some exceptional numbers. Through the downturn in 2000-2003 they provided amazing returns and many participants thought their accounts were invincible.
Approximately three years ago the money manager sold his firm and retired. It was at this time that the plan trustees decided to open the plan up to participant direction and, in addition to what was now the US large cap value oriented separate account, they added a US large cap growth mutual fund and a total return bond fund. A simple line up of three choices seemed appropriate for participants that had never exercised self direction before.
As of today, 68% of the plan assets remain in the large value separate account. Our conversations with participants indicate that their lack of diversification is a result of both the confidence they had in the strategy based on past experience and a lack of sophistication and education regarding investments.
The organization has now approved a fully diversified fund lineup to be used on the new vendor's platform. 18 institutional mutual funds representing various asset classes and styles of investing as well as a series of passive target date funds that have been approved for use as QDIAs.
Continue reading "Mapping Retirement Assets in Down Markets " »
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