NEEDHAM, MA, September 21, 2016 – Retirement plan advisors and sponsors face vastly increased responsibilities today in the handling of their 401(k) target date fund (TDF) offerings. With increasing market uncertainty and the Department of Labor’s (DOL) highly publicized 2016 ‘fiduciary rule,’ these popular and important funds demand much greater involvement and oversight to meet the heightened complexity and rigor of new DOL compliance standards.
Beaumont Capital Management (BCM), a leading provider of tactical ETF-based investment solutions, explains in its new whitepaper, Questions a Fiduciary Must Be Able to Answer, some of the specifics of the DOL’s new rules and responsibilities for fiduciaries and offers guidance in successfully fulfilling them.
“The target date fund is one of the most commonly utilized offerings in 401(k) plans, and for good reason. For the participant, they are a straightforward way to start investing for retirement,” said Dave Haviland, BCM’s Managing Partner and Portfolio Manager, and author of the new whitepaper. “However, since the failures of many first-generation TDFs, including their performance in the 2008 market downturn, the DOL has a close watch on this class of funds. TDFs can no longer live in a ‘set-it-and-forget-it’ era, and the DOL has taken steps to assure that plan fiduciaries know exactly what they are providing in their TDFs and that they are serving the best interests of plan participants.”
There are five responsibilities that all retirement plan professionals now must follow on a plan by plan basis. In the whitepaper, BCM outlined these responsibilities along with supporting details and questions to guide plan advisors and sponsors. The points below will further be explored in a webinar hosted by Dave Haviland on Tuesday, Oct. 11th at 4 p.m. and Monday, Oct. 17th at 11 a.m.
- Create an objective and documented process for comparing, selecting, reviewing TDFs
- One size no longer fits all – the DOL is especially wary of offering only one bundled family of funds.
- Understand the funds’ investment mix, strategies and risks and how they change over time
- Equity ownership across TDFs can vary as much as nearly 50%, from 35% to 85% in some cases.
- Not all bonds in TDFs are the same and many are not the more conservative position typically sought to balance portfolio risk.
- Determine that base expenses are appropriate for the services provided
- What do participants truly want for fund service and management?
- Are participants willing to trade lowest available fees for the potential of indexed funds “going over cliff” with a failing market? Or do they expect the TDF manager to actively try to protect their nest egg?
- Establish if the TDFs are designed to avoid large losses
- Can your plan’s TDFs get defensive during market failures?
- In 2008, the three largest 2016 TDFs lost between 21-27%. Those major losses changed the lives and plans of those about to start their retirements in ways that no one wants to see happen again.
- Create effective participant communications – no longer just a goal, it is required
- Are you empowering participants with appropriate information from the very beginning of your relationship?
“We strongly support the DOL’s actions and believe that all retirement plan professionals must be fully aware of their increased fiduciary responsibilities,” said Haviland. “Target date funds will continue to be a popular option, often accounting for as much as ¾ of the plan assets, but participants must have the confidence and assurance that they are being well guided and fully informed in their investment decision making.”
For more information on Beaumont Capital Management’s new whitepaper, please contact Jim Walker at firstname.lastname@example.org or (781) 444-5478.
About Beaumont Capital Management (BCM)
Beaumont Capital Management provides tactical, growth strategies to advisors, institutions and retirement plan providers. BCM’s rules-based, defensive-oriented investment solutions seek to provide growth while avoiding large bear market losses. The firm’s tactical, ETF-based portfolios offer cost-effective, active management for virtually any investor, and the TDFs are DALBAR certified. Created in 2009, Beaumont Capital Management is a separate division of Beaumont Financial Partners, which traces its history to 1981. Beaumont as a firm has approximately $3.8 billion in AUM & AUA as of 6/30/16. For more information, visit www.investbcm.com.