Fred Barstein with Adjunct Lecturer, Michaela Scott – Strategic Retirement Benefits Group.
Target date funds are a common investment option in retirement plans, especially for those with a specified retirement date. This is especially good for those looking to simplify their investment strategy, as target date funds automatically adjust their asset allocation over time based on the participant’s expected retirement date. By opting for target date funds, investors can delegate the complexities of portfolio management to professional fund managers, who strategically balance risk and return to align with the participant’s retirement timeline. This hands-off approach is particularly beneficial for individuals who may not have the time, expertise, or inclination to actively manage their investment allocations, providing a convenient and potentially less stressful option for long-term retirement planning.
During The Plan Sponsor University (TPSU) Fiduciary Education Program held in Andover, Massachusetts, Fred Barstein, TPSU’s founder and CEO, engages in a discussion with Michaela Scott, an adjunct lecturer and representative of the Strategic Retirement Benefits Group. Michaela emphasizes the need for a thorough evaluation of target date funds, recognizing that the suitability of these funds may vary based on the demographics of the plan participants.
They also discuss the need to align these investment options with compliance of the Department of Labor (DOL) guidelines. Michaela also highlights the significance of a thorough review of the fixed income portfolio, especially in the context of rising interest rates, emphasizing the need for a cash equivalent review and documentation for fiduciary best practices.
Read the Full Transcript Here:
Fred Barstein: Greetings. This is Fred Barstein, CEO, and founder of TPSU and 401k TV, just completed a program at Andover. I’m here with our adjunct lecturer, Michaela Scott, welcome Michaela.
Michaela Scott: Thank you, Fred.
Fred Barstein: Okay, if we ask you a few questions?
Michaela Scott: Absolutely.
Fred Barstein: Okay. Before we do, tell us a little bit about yourself and your firm.
Michaela Scott: Thank you. Michaela Scott. Our firm is the Strategic Retirement Benefits Group. We’re a 401k, 403b focused advisors, helping plan sponsors maximize their financial benefits.
Fred Barstein: Right, yes. Recognized as one of the top firms.
Michaela Scott: Thank you.
Fred Barstein: Woman advisor, under 40, and millennial, right?
Michaela Scott: Yeah. So that’s our team making me look good.
Fred Barstein: So we had a lot of discussion today about investments and what are the things, and it can be overwhelming for plan sponsor.
Michaela Scott: Absolutely.
Fred Barstein: What are the two things that you think they should focus on when it comes to investments?
Michaela Scott: So I was really surprised to hear that a target date suitability, or a deep dive/fit was something that wasn’t necessarily on the top of people’s mind. It’s one of the biggest fiduciary decisions they’re making is that qualified default investment alternative, which most commonly is a target date fund. The DOL actually gives us really specific guidance on what you have to do. So surprising to me, and just critically important, that advisors proactively sit and do that with plan sponsors. And if they’re not, the plan sponsors know to ask, “Hey, help us do a deep dive here.” Not just to the investment policy statement and scoring it out to those metrics, but further to fit it to the demographics and follow those DOL prescribed guidelines on what target date strategy should be utilized.
Fred Barstein: Yeah.
Michaela Scott: A lot of good conversation about active/passive blend, the hybrid, the upticks, interesting conversation about the suits. And it’s not, “Oh, it’s too expensive,” now it’s, “Oh, it’s too inexpensive.” So it was the process-
Fred Barstein: The process.
Michaela Scott: … it was the process, process, process and that was fascinating to me. What people have, and more importantly, haven’t done, that they need to be doing.
Fred Barstein: What’s the second one?
Michaela Scott: So the second most important is going to be, especially now looking at the capital preservation, talking about what’s in the fixed income portfolio offering. And really, if you have a stable value fund, doing a cash equivalent review. Understanding what your fund is doing, what is underneath the fund, if a record keeper discount was provided to offer that, understand the discontinuous provisions. Really just know, because with interest rates rising, if your capital preservation isn’t keeping up, you’re going to have participant questions about this. And annually you’re going to want to document why that solution in your lineup was prudent.
Fred Barstein: Right.
Michaela Scott: And it just has been not discussed by very many people.
Fred Barstein: Right, because it’s not very well understood.
Michaela Scott: Or it’s a boring asset club, whatever it is, but not so boring anymore in this environment. So just from a fiduciary best practice documentation of that cash equivalent review and knowing what you have and what you’re offering is key.
Fred Barstein: Final question. I know this is your first TPSU. Why should plan sponsors attend? What’s the benefit they get?
Michaela Scott: Oh, the peer-to-peer conversation was the most impactful.
Fred Barstein: Right.
Michaela Scott: Being able to say, “This has worked, this hasn’t worked.” Being able to ask questions to somebody without the expectation of them wanting to earn your business, not to make a promise, but to basically hear from whether it’s an auditor, whether it’s industry specialists, administrators, top plan administrators, to hear from them, break out, have each plan sponsor talk amongst themselves about those subjects, and be able to come back. That was hands down the most valuable. That was a hundred percent the most valuable. And I think people left a lot more confident and with very actionable takeaways.
Fred Barstein: Right.
Michaela Scott: This is what we need to consider, and this is what I’m going to ask.
Fred Barstein: And even though, and I agree, it’s the most important, we still have to have experts come in because they’re-
Michaela Scott: Absolutely, yes.
Fred Barstein: … It sort of creates the discussion on it.
Michaela Scott: Yes.
Fred Barstein: Well, thanks for participating in TPSU.
Michaela Scott: Thank you.
Fred Barstein: And thank you for watching 401k TV. Please stay tuned.
