Q3 Market Recap: Hear the U.S. Economy Roar!

But Listen to the Whispers of Caution, Too

The U.S. economy’s robust growth continues to lead global expansion, but there are reasons for investor caution moving forward as interest rates continue to rise incrementally, concern about inflation grows, and market volatility increases.

The Q3 Market Recap shows that the global economic expansion continues, although at a slightly lowered pace. Last quarter, the Market Recap covered the strength in the leading economic indicators. Positive stock performance was underpinned by solid economic data again in the third quarter.

As the U.S. economy continues its remarkable recovery from the recession a decade ago, investors are paying attention to all of these global and domestic activities that may influence how long and how strong this recovery will be going forward.

Read the Q3 Market Recap to learn more. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at sbs@hanys.org.

Doing Good While Doing Well

Plan fiduciaries are seeing increased interest in social, or impact, investing as an option in their plan offerings. We have witnessed the evolution of socially responsible investing (SRI) from being just a consideration of avoiding companies that profit from “sin” (alcohol, tobacco, gambling, firearms, etc.) to a holistic focus on environmental, social, and governance (ESG) factors as integral to an investment strategy.

To be good stewards of capital, advanced knowledge of the benefits and significance of sustainability in investing―aligning with values―is essential. It is especially important to the millennial generation, and is consistent with the importance many institutions place on social responsibility as part of their greater mission.

Standard Items Appearing In An Investment Policy Statement

A retirement plan’s overarching goals are to help participants accumulate wealth during their years of employment and to provide them with income during their retirement.

The challenge for fiduciaries is to successfully navigate the options available and build an optimal investment menu that is designed to guide participant choices and improve their retirement readiness. Since plan fiduciaries may be exposed to personal liability, it is prudent to have a process in place for the selection and monitoring of investment options.

Plan fiduciaries should have an established framework on which they can defend their investment decisions should they ever be challenged. The process should begin with the construction of the plan’s Investment Policy Statement (IPS). Although not required by the Employee Retirement Income Security Act (ERISA), drafting an IPS is a fiduciary best practice. The IPS serves as a policy guide that can offer an objective course of action to be followed when emotional or instinctive responses might otherwise motivate less prudent action.

Active vs. Passive Investing Styles: An Age Old Rivalry

Active vs. Passive investing styles is an age-old debate in the investing world. Investment managers on either side tend to be steadfast advocates of the merits of their approach. Active managers seek to exploit market inefficiencies by relying on analytical research, forecasts, and their own judgement and experience to decide which securities to buy, hold, and sell. Passive investing involves simply tracking an index to avoid the management fees and trading costs that can be a drag on performance by adhering to a buy-and-hold strategy.

In Active vs. Passive Investing Styles: An Age Old Rivalry, SBS traces the origins of the active and passive investing styles, dives into the historical performance and asset flow trends of each, and addresses how plan sponsors can make prudent decisions about employing each investing style.

Complete the form below to download your copy today. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at sbs@hanys.org.

11 Questions Employers Should Ask About Stable Value Funds

Stable value investments have been a core investment option in defined contribution retirement plans since the 1970s and are an attractive alternative to money market investments due to steady returns and principal preservation guarantees. Stable value funds have proven their worth to investors during the protracted period of low interest rates present since the recent financial crisis. Consider the following comparison of 2007-2016 calendar year total return for the Vanguard Federal Money Market Fund (VMFXX)[i] to the SBS MetLife Stable Value Fund.

1. What is a stable value fund?

7 Questions Plan Fiduciaries Should Ask About Target Date Fund Strategies

1. What is a Qualified Default Investment Alternative (QDIA)?

The Pension Protection Act of 2006 (PPA) encouraged employers to adopt automatic enrollment features for their participant‐directed plans by providing a new type of fiduciary liability relief for “default investments,” or Qualified Default Investment Alternatives (QDIAs). A QDIA is used when a participant fails to make his or her own election. An investment must have specific qualifications to be considered a QDIA. Importantly, a QDIA’s asset allocation strategy need only take into account participant age, and does not need to consider an individual participant’s risk tolerance or other investment assets. One of four types of allowable QDIA’s, Target Date Funds (TDFs) were the QDIA in 95% of retirement plans in 2015 (Source: Vanguard, 2016).

2. What due diligence should plan fiduciaries perform when choosing a TDF?

Understanding Custom vs. Proprietary Target Date Funds

Target date funds (TDFs) are characterized as either proprietary or custom. The U.S. Department of Labor encourages plan fiduciaries to consider a custom solution. Custom TDFs are typically offered in separate account or collective trust vehicles. These vehicles are not registered as investment companies under the Investment Company Act of 1940 and therefore are precluded from use in 403(b) plans. Proprietary TDFs are defined as pre‐packaged investments that usually are comprised of underlying mutual funds of a single investment firm. Therefore, it can be challenging to ensure “best in class” managers are offered across the underlying funds within the proprietary TDF.

Using Investment Menu Design to Improve Participant Outcomes

Many participants lack the ability, time, and/or desire to effectively make sound investment decisions and manage their accounts on an ongoing basis. Traditionally, many plan sponsors felt their responsibility was to offer a broad range of investment options together with employee education. The results, all too often, were that participants were overwhelmed with choice and rarely availed themselves of the education. In recent years, the trend has been to limit the number of investment options and guide participant behavior. The investment menu structure may be just as important as the actual investment options themselves. An effective menu design will address the various participant behaviors:

Properly done, a well-designed investment menu can direct behaviors and give participants the confidence they need to feel comfortable with their investment decisions.

Read Improving Participant Outcomes: An Action Plan for Plan Sponsors and start developing your action plan to improve participant outcomes. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at sbs@hanys.org.

Best Practices for Setting Up An Investment Committee for Corporate Retirement Plans

In our 2014 Retirement Survey Report, about 79% of survey participants said they have an investment committee. Given a complex environment of regulatory scrutiny and fiduciary liability exposure, a committee specifically charged with investment oversight is a sound risk management strategy for plans and organizations of all types and sizes.

Although they will differ from one organization to the next, best practices suggest an investment committee’s responsibilities and duties include:

Retirement Plan Best Practices for Using an Independent Advisor

Best practices underscore the value of using an independent advisor with regard to developing, implementing, and overseeing a retirement plan. An experienced, independent advisor can offer valuable guidance and feedback to help ensure that a retirement plan is meeting the objectives of both the plan sponsor and participants. As a plan fiduciary, if you are lack the expertise necessary to fulfill your fiduciary obligations,

404(c) Compliance Checklist

By complying with ERISA section 404(c), sponsors and other fiduciaries of retirement plans with participant-directed investments may shield themselves from liability for poor investment decisions made by plan participants. If a retirement plan meets the requirements of ERISA section 404(c), no plan fiduciary will be liable for any loss that is the direct and necessary result of a participant’s exercise of control over the investment of his or her plan account.