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Is Your 401(k) Plan Investment Policy Statement Positioned for a Transitioning Administration?

investment policy statement The entire country is in the edge of their seat – waiting to learn how the new administration will impact the individual, their family, their employer, their healthcare and everything other facet of their day-to-day life.  As the country is cloaked in anticipation for the next 60 days the prudent 401(k) plan fiduciary will review their Investment Policy Statement (IPS) and corresponding assets to determine appropriateness.

Historically, it is U.S. and foreign equity markets that get the early-ink and November 9, 2016 was no exception.  Equity markets were fluid and reactionary in the wake of the U.S. Presidential Election.   Fixed income markets are traditionally less volatile in the short run but domestic fixed income could be poised for a prolonged bear market.  All of this points to the need for 401(k) Plan Fiduciaries to make sure that their Statement of Investment Policy is current and in concert with the plan’s investments.

IPS Review

In reviewing the IPS take a particular interest in the language which describe maturities, duration and statistics of the fixed income asset. With interest rates hovering at historical lows there is substantially more room for a prolonged bear market in bonds than anything else.  The typical 401(k) investor is not accustomed to losing money in their bond investments.   Having an awareness of the impact to participant accounts if they were to endure a 2 percent rise in interest rates would be a good message to convey to all participants.

An annual review of the IPS always makes sense.   This year-end being a Presidential Transition year, it would be best to conduct an even greater analysis (and document it) to determine the impact of even a small revision to rates.  It is best for Plan Fiduciaries to check with their Plan Advisor to run such an analysis so you can rest assured that your research will be thorough.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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