Broker Check

Not Removing “Underperforming” Funds from Your Plan Menu

| April 26, 2024

Plan fiduciaries are expected to routinely conduct a review of the plan’s investment options based on appropriate investment expertise and a prudent process.

Occasionally, your investment review will encounter plan investment options that no longer meet the criteria established in the plan’s IPS (please see the blog post from February of 2024 for more information regarding the IPS). The plan’s IPS will document certain parameters to identify a fund that is underperforming, such as length of time of underperformance and degree of underperformance.

The process of deliberation for removal and/or replacement of an underperforming fund should be made based on ERISA’s “Prudent Man Rule”. This rule is specific and delineates certain steps that reflect ERISA’s prudent process. According to ERISA’s Prudent Man Rule, one would identify an underperforming fund. Next, is a consideration to maintain or remove and/or replace the fund in question. This consideration must be substantiated with investment expertise (e.g., investment advisor) and IPS documented process. The decision should then be concluded upon, effected, and confirmed. Lastly, the decision should be reviewed periodically to affirm that the decision remains prudent.

Interested in learning more? Please see the below link.

Click for PDF of the Scorecard System Methodology