BEST PRACTICES: Asset Allocation for Defined Contribution Plans Flashcards
Public employers as plan sponsors should work actively with the plan administrators to provide investment options and education to help employees who participate in defined contribution plans attain their income replacement goals in retirement.
What is recommended for public employers regarding defined contribution plans?
They should work actively with plan administrators to provide investment options and education to help employees attain their income replacement goals in retirement.
What types of investment choices should be offered to ensure adequate diversification?
A broad spectrum of investment choices including all major asset classes (equities, fixed income, and cash equivalents), passively managed investment options like low-fee index funds, and a family of asset allocation funds.
What criteria should be used to screen investments?
Sales charges, fees, expenses, fund age and size, past performance, risks, turnover rate, volatility, and recent operational changes, including fund manager changes.
How should investment choices accommodate participants?
By being broad enough for proper diversification, accommodating varying levels of risk tolerance, and addressing the needs of different age groups and retirement goals.
What tools should the plan sponsor make available to participants?
Asset allocation tools, software, literature, or consulting services, and access to personal financial planning services, with any additional fund fees or expenses disclosed.
What reporting should record keepers provide?
Quarterly summaries of investment portfolios by asset class with benchmark comparisons, including graphs with comparative information where possible.
Why is it important for participants to review and update their asset allocations?
Because their needs and circumstances (such as age or employment status) change over time, impacting their investment strategy and retirement goals.
