What Should a Fiduciary Be Doing in Down Markets?

With the recent stock market volatility, retirement plan fiduciaries are wondering what they should be doing, or if they have done enough, to help participants cope with down markets. Following are three governance items for you, as a fiduciary, to follow in times of market turmoil. As 401(k) Advisors, we work with retirement plan fiduciaries to manage through both good and bad times.

Fiduciary Response to Market Volatility

1. Analyze Retirement Plan Investments Thoroughly

As a Fiduciary, one of your most important duties is to make sure that you adhere to a documented investment process. Your plan should have an Investment Policy Statement, which describes the selection and monitoring process for your retirement plan assets. Decisions regarding 401(k) investments must be consistent with other timeframes. In other words, the plan will not replace investment options just because it is a down market, but rather because those investments no longer adhere to the criteria set out in the Investment Policy Statement.

Remember you protect yourself by following and documenting a fiduciary process. As experienced 401(k) Advisors, we help retirement plan sponsors fulfill their fiduciary duty. Our Investment Scorecard reviews 401(k) investment options from several different quantitative and qualitative points. The key findings in the Scorecard are as important today as they have always been. If you would like to see a sample Scorecard, please feel free to contact us.

2. Help Participants Understand Plan Fees

Your 401(k) advisor and service provider communicates plan fees on at least an annual basis and whenever fund changes are implemented. Litigation, whether successful or not, has often originated around fees, so disclosing them whenever possible should be a priority.

A best practice for fiduciaries is to go beyond fee disclosure by helping participants understand how plan expenses affect their retirement readiness. At a minimum, you should be asking yourself:

Have you distributed your fee disclosure?
Do you post plan documents and plan fees on your intranet site?
Do you invite participants to ask questions if they don’t understand plan expenses?

3.Educate Your Employees About Retirement Savings

Employees need to be reminded they should be investing in appropriate investments for their time frame and risk tolerance. It’s important to explain how their contributions work for them during these challenging times when the markets are down. Consistent savings during down markets often helps long-term investment returns. Many employers may be uncomfortable about providing retirement education themselves, so look at resources available from your 401(k) advisor, service provider or consider hiring an outside retirement plan consultant.

While no one likes down markets, everyone needs a plan to cope with market volatility. As a retirement plan fiduciary, you can help participants better manage what is within their control. If you’d like assistance in developing employee commucations, please feel free to contact your 401(k) Advisors.