Deck 29: Investing Retirement Assets

Question 1

What are the three continuing stages in the development of plan investment provisions

Answer 1

The employers have large number of investment choices which are making their plans good. The employers should know about the investments, and financial planning, which shows that large number of employers don't focused to manage their plans in an effective manner.
The three continuing stages in the development of plan investment elections are as follows:
Design
In the design, the employer should make a proper series of decisions related to plan assets. Initially it is consider that which asset classes will get offered. This type of decision may get influences with the administrative costs, objectives of plan, the features related to risk, and return, and the needs of participants.
The asset classes may get considered which contains the cash equivalents, bonds, international stocks, bank investment contracts, small-capitalization stocks, emerging market, guaranteed investment contracts, and employer stock. Hence, such asset classes may include the market nature in which the liquidity constraints get imposed.
The next issue is related with the offer of assets, that whether such asset classes have some different types of investment options, from where the employees can choose their own mix or to combine it into the predetermined set of portfolios, which shows different features of risk, and return.
Implementation
When the asset classes get determined, the investment objectives related to every class of asset get established. It is important to ascertain that the right investment managers should get selected. The objectives should be related with the expectations of the employers like return, and risk features, the preferences of an investment style, and the horizon of time which can manage the assets.
Monitoring of Plan Investments
The plan investment structure, and the investment manager performance should get monitored on a regular basis. The performance should get monitored in the objectives context which get established at the outset. In the review process it contains, the comparison of returns with the benchmarks, and objectives. The analysis related to returns which can meet the expectation over the long time period.

Question 2

What decisions must be made in the design phase of developing plan investment provisions

Answer 2

In the design, the employer should make a proper series of decisions related to plan assets. Initially it is consider that which asset classes will get offered. This type of decision may get influences with the administrative costs, objectives of plan, the features related to risk, and return, and the needs of participants.
The asset classes may get considered which contains the cash equivalents, bonds, international stocks, bank investment contracts, small-capitalization stocks, emerging market, guaranteed investment contracts, and employer stock. Hence, such asset classes may include the market nature in which the liquidity constraints get imposed.
The next issue is related with the offer of assets, that whether such asset classes have some different types of investment options, from where the employees can choose their own mix or to combine it into the predetermined set of portfolios, which shows different features of risk, and return.
Every type of asset class get diversified, combine different types of management styles like value, and the growth in the equity portfolio, short-term fixed-income strategies, and a GIC providers in a GIC portfolio. The employers which can offer the stock of the company as an investment option can considered as another equity option mainly designed for the company stock.

Question 3

What types of questions should the plan sponsor ask during the design, implementation, and monitoring phases of the development of plan investment provisions

Answer 3

The employers have large number of investment choices which are making their plans good. The employers should know about the investments, and financial planning, which shows that large number of employers don't focused to manage their plans in an effective manner.
The questions which should be ask by the plan sponsor in the design, implementation, and monitoring phase are as follows:
Design
• Do the investment plans have a right risk spectrum, and reward choices which are given for the plan objectives, and for demographics
• Do employers, and employees make investment in the right asset classes
• Do the decisions are right, the ability to change the mix decisions are right, and employers are getting the right choice, and plan objectives.
• Is the plan get designed in a right manner which helps to provide the benefit under section 404(c) safe harbor provisions
• Is the investment options are diversified in nature
Implementation
• Has the passive or active investment decisions made for every investment alternative
• Has the selection process of manager get documented, and applied to every manager which get selected
• Do the written statement of investment policies, and objectives for every investment manager is present
Monitoring
• Do the review related to performance of manager undertaken on quarterly basis, the review get may get conducted on annual basis
• Do the clear criteria get established in order to determine, or to retain, and replace an investment manager
• Do the plan investment policies, objectives, and procedures get reviewed, and get verified on annually basis
• Do the investment options may offered at least on annually basis

Question 4

Describe the difference between active and passive investment management styles.

Question 5

Discuss alternative approaches to investment education and what techniques may be particularly effective in instructing employee participants on retirement planning issues.

Question 6

Identify key matters to be addressed in the review process of investment management performance.

Question 7

Explain the reasons for limited investment options in early defined contribution plans.

Question 8

What is meant by risk-adjusted return

Question 9

Discuss employer situations where the selection of predetermined sets of diversified

Question 10

Describe the factors in the past 25 years that have contributed to an expansion in employee investment options in defined contribution plans.

Question 11

Discuss the criteria that you would use to make a change in plan investment managers.

Question 12

Discuss employer motivations to look more closely at plan objectives and plan performance.

Question 13

Identify three major areas where plan investment provisions should be compatible with plan sponsor objectives.

Question 14

How can a plan sponsor limit its fiduciary liability regarding the investment of plan assets

Question 15

What are the Section 404(c) safe harbor provisions

Question 16

What are the disadvantages to using employer stock as an investment option in a defined contribution plan

Question 17

What administrative issues need to be addressed in structuring the investment provisions of a defined contribution plan

Question 18

What does Section 404(c) require regarding the frequency of change of investment elections