Covering Your Assets: Best Practices if You Are a Retirement Plan Trustee

For starters it is important to realize that you do not have to know everything—you only have to know the right things.  


ERISA is the Employment Retirement Income Security Act. Enacted in 1974, ERISA was passed by Congress to protect investors’ retirement plans and to ensure adequate investment returns for defined benefit participants. One only has to look at the Studebaker debacle from the early 1960s to see why and how this landmark Congressional act came into being. ERISA was based primarily on trust law but did, however, depart from the Prudent Man Rule when it came to portfolio management. It was out of this departure from trust law that the Uniform Prudent Investor Act was born. UPIA has been enacted by most states and should be required reading for any trustee.

Review all documents associated with your plan

Make sure that you have on file your investment policy statement, brokerage and custodial statements, all service agreements with investment managers, information on money managers, and investment performance reports. This file should be kept up to date and always available. You never know when your company could be subject to a Department of Labor audit.  

Understand the role of diversification

Diversification is vital in the success of any portfolio. Because markets do not move in the same direction all the time, it is important to build a portfolio of assets that move in dissimilar fashion of each other. Diversification takes into account the specific risk return profile of the participant and makes sure that the adequate time horizons, funds and the mix of those funds are appropriate to meet the goals of the participant.

Prepare an investment policy statement

An investment policy statement (IPS) is a road map and business plan for your retirement program. The IPS will define the framework by which the investment options are selected and what their role is in the process. The IPS can also serve as a beacon in times of market turmoil to ensure that you are remaining consistent with the objections of the investment program. Additionally, the IPS can also ensure that you remain prudent with the objectives of the program when the market seems that it will never come down (remember the technology boom?).  

Control and account for investment expenses

It is imperative to be able to document all costs associated with the investment program. This includes money management fees, administrative fees, record-keeping fees, expense ratios, internal fund cost (bid/ask spread costs, transaction cost) and custodial costs. It is not only important to know the explicit cost, but implicit as well.

Most importantly, know if you have a fiduciary relationship with your plan.

Jon Bucklin CFP, RFC is managing member of Wealth Management Partners LLC.








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