At some point, all good plan fiduciaries will need to make changes to their investment menu. This could be a simple replacement of a poor-performing fund or a complete overhaul of the investment menu when transitioning to a new recordkeeping provider. Each change involves moving participants' money from one investment option to another, requiring careful consideration.

Option 1: Like Fund Mapping

• Description: Plan assets invested in the fund being removed are mapped to a new, similar fund.
• Process: Use third-party categorization systems like Lipper or Morningstar to find a similar replacement.
• Example: If removing a Foreign Large Growth fund, map assets to another Foreign Large Growth fund.
• Pros:
  • Simple and easy to communicate to participants.
  • Maintains a similar risk profile for participants' portfolios.
• Cons:
  • Not always available as an option.

Option 2: Map to Broadly Diversified Asset Class Option

• Description: Map assets to a similar but more broadly diversified investment choice.
• Process: Choose a broadly diversified option with similar characteristics to the fund being removed.
• Example: If removing a utilities sector fund, map to a broadly diversified U.S. equity fund.
• Pros:
  • Simplifies the investment menu.
  • Reduces the number of funds available, making it easier for participants to manage.
• Cons:
  • May not always align perfectly with the removed fund's characteristics.

Option 3: Map to Target-Date or Risk-Based Fund

• Description: Map assets to a target-date or risk-based fund.
• Process: Select a fund based on the participant's age or risk tolerance.
• Example: If removing a specific sector fund, map to a target-date fund appropriate for the participant's retirement timeline.
• Pros:
  • Provides a diversified investment strategy.
  • Automatically adjusts asset allocation over time.
• Cons:
  • Participants may not fully understand the new fund's strategy.

Key Considerations:

• Communication: Clearly explain the changes to participants to ensure they understand the impact on their investments.
• Evaluation: Regularly review the performance and suitability of the new investment options.
• Compliance: Ensure all changes comply with ERISA and other regulatory requirements.

Best Practices:

• Documentation: Keep thorough records of all decisions and actions taken.
• Participant Education: Provide resources and support to help participants understand their investment options.
• Regular Reviews: Conduct periodic reviews to ensure the investment menu remains aligned with participants' needs and goals.
  
  

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.   Investments involve risk and, unless otherwise stated, are not guaranteed.  Multnomah Group does not provide legal or tax advice.  Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.