Pension Investments Must Meet Federal Law

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Reprinted From: The News Journal
Written By: Nancy F. Blumberg, CPA-PFS, CFP
Business owners can be held accountable for the performance of their company's pension plan.

Under federal law, employers sponsoring a retirement plan must formulate an overall investment policy. A written policy statement that outlines the investment objectives helps employers prove they are meeting their fiduciary responsibilities.

Even when investment decisions for plan assets are delegated to a trustee or investment manager, the employers are still responsible for the selection and for monitoring investment performance. A policy statement may explain the criteria of investment manager selection and how their performance will be evaluated.

Employers must also provide their employees with investment alternatives in a 401(k) plan. The policy statement may include the range of investment alternatives the plan will offer, control the employees have over their accounts (i.e. how often changes can be made), the availability of investment information, benchmarks that will be used for measuring investment performance and timing and procedures for evaluation.

Federal law requires that funds for 401(k) plans be selected prudently and monitored continuously. Employers who comply with the act are required to offer participants:

A minimum of three different investment alternatives with varying risk and reward characteristics.

  • A frequent election period allowing them to switch investment at least quarterly.
  • Sufficient information about investment alternatives to help employees make informed investment choices.