When designing an optimal menu of defined contribution investment options, it’s important for plan sponsors to maintain a documented rationale for the investment lineup and to continually monitor the lineup’s performance amid external factors, according to a new report by the Defined Contribution Institutional Investment Association.
It found while plan sponsors typically take one of three approaches to DC investment options — making all investment decisions for members, assisting members with investing or allowing members to make their own investment decisions — there’s no single best approach to designing an investment menu.
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The report also outlined five external factors that can influence DC investment outcomes, including participant behaviour and demographics; fiduciary committee beliefs and preferences; regulatory, legislative and legal considerations; industry providers and advisors; and capital markets. It noted depending on the investment approach taken by a plan sponsor, these external factors can influence a plan’s objectives in different ways.
“One solution does not fit all, but plan sponsors have a fiduciary responsibility to understand their plan’s unique attributes and considerations and design an investment menu that meets their participants’ needs and is consistent with the plan objectives,” said the report.
“Most importantly, investment menu decisions should be solely in the interest of plan participants and beneficiaries. Understanding key investment menu influences may help to inform these decisions and lead to better participant outcomes.”
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