F oF Five seRies

1 RetiRement plan Best PRactices plan monitoRingFouRth oF five -PaRt seRiesArnerich Massena, 2018 Contributors: Ryan Cunningham, CAIA; Jillian Perkins; Terri Schwartz; Chris Van Dyke, CFA, CAIA This paper is the fourth in Arnerich Massena s five -part seRies on retirement plan best practices. The full seRies covers retirement plan best practices in the following areas: plan goveRnance plan Design investment menu constRuction plan monitoring PaRticiPant eDucationArnerich Massena2045 NE Martin Luther King Jr. , OR oF contents plan monitoring ..page 1 monitoring Investment funds and managers ..page 1 plan providers ..page 2 plan fees ..page 6 plan benchmarking and fee analysis ..page 9 Conclusion ..page 11 RetiRement plan Best PRactices: plan monitoRing1 Securing the Future TogetherPlan monitoRingThe first three papers in this seRies covered plan governance, plan design, and investment menu construction, providing the foundation for building a retirement plan that follows best practices and serves participants.

2 The next step for plan sponsors is to monitor the plan and ensure that it continues to meet its objectives. Maintaining an employer-sponsored retirement plan is an ongoing process, requiring dedicated attention and oversight. monitoring your investment menu managers, your plan providers, and plan fees is an important part of your overall fiduciary responsibility. plan sponsors vary widely in how they monitor their plans. What are best practices, and what standards should you be following in your monitoring practices? In this paper, we ll look at best practices for: Reviewing performance and other data of your investment menu managers Managing your plan providers and best practices for conducting an RFP and negotiation process Benchmarking your plan providers Assessing, monitoring , and benchmarking plan feesFiduciary liability often comes down to process more than outcome.

3 Have you set up a prudent monitoring process for your plan , and are you following that process? Are decisions being made according to that process? To demonstrate fiduciary prudence, it is critical to document the process you intend to follow as well as the process itself as you conduct it, keeping careful records of decision-making at all stages. Throughout this paper, you ll find checklists that may be helpful in building and maintaining your plan monitoring processes. monitoring investment FunDs anD manageRsReviewing fund lineup performance is at the top of the list when it comes to monitoring the plan . The investment menu, once constructed, needs to be continually reviewed and evaluated. Reviewing performance is important, of course, but plan sponsors should be looking at an array of factors to ensure that the funds in their lineup continue to meet their participants needs and fit into the investment and performance should be carefully reviewed at least quarterly.

4 It s important to keep in mind that short-term performance fluctuations should not be the sole focus of these reviews, which should be conducted to maintain ongoing consistent review of the plan s investment options and to document that review. plan sponsors may opt to choose a discretionary, or 3(31) arrangement with their consultant, in which case this review is generally performed in an ongoing manner by the consultant on their behalf. Otherwise, the investment committee should participate in the review, guided by the plan s investment plan Best PRactices: plan monitoRing2 Securing the Future TogetherThe quarterly review should include an in-depth look at a variety of issues: Performance: While performance should be reviewed each quarter, it s important to keep a long-term perspective and look at performance over full market cycles rather than short-term ups and downs.

5 Managers in an investment menu should be selected to fill a designated purpose, and performance should stay consistent with that purpose. Review the market environment, market drivers, sector performance, and other factors that may affect fund performance in order to provide additional changes: Are there any major changes taking place in your investment managers, such as staff changes, mergers or acquisitions, or significant changes in assets? This can impact the manager s ability to continue fulfilling the purpose identified when they were selected for the investment lineup: While you will analyze the menu structure and lineup more in-depth during the initial selection phase, it s wise to continue to review it periodically to ensure that it is meeting your plan objectives. Are participants using all of the options? Does the menu offer adequate diversification, and do the funds work well together?

6 Are you providing your participants with tools like target-date funds?Fees: We ll talk more about monitoring and benchmarking fees later, but the quarterly fund review should include a look at fees to ensure ongoing quarterly review should be well documented in meeting minutes that include any actions or decisions taken. Use the checklist on the following page to guide your process and help ensure a comprehensive review and PRoviDeRsFortunately, you have partners to help manage your plan , including your plan recordkeeper, plan investment consultant, and any other providers you may work with. As a fiduciary, you have a responsibility to monitor these providers and ensure that the services they render are meeting the needs of the plan at a reasonable cost. You must be able to show that you have engaged in meaningful analysis and comparison of your providers and their committee should conduct an annual review of each provider.

7 At this time, the committee should review the provider contract to make sure all terms are being met. Additionally, review the provider s overall service structure and evaluate the service provided in the context of the participants needs. It can be helpful to have your providers put together a short presentation to walk through their services, giving the committee context for the evaluation. Be sure to address the following questions and identify any issues or challenges: Are the services continuing to meet the needs of your plan and participants? Is it a reasonable level of service for the cost? Are there services that you feel are lacking, or services that are not included but which participants might benefit from? RetiRement plan Best PRactices: plan monitoRing3 Securing the Future Togetherinvestment line-uP Review checklist The lineup provides adequate options for diversification.

8 There are options suitable for your participants level of sophistication. The funds work well together. The menu is constructed in an easy-to-use fund lineup Fund performance is in line with expectations. Are there any significant deviations that require attention? Are there any funds that have been consistently underperforming?Performance Have there been any change to senior staff members? Are the managers consistent in their philosophy and approach? Have there been any significant changes to assets under management that might affect the fund?Managers Are the fees reasonable for the type of fund? Are you in the lowest-fee share class available? How do the fees compare with plans of similar size?FeesRetiRement plan Best PRactices: plan monitoRing4 Securing the Future TogetherIn addition to an annual review, plan sponsors should consider undergoing an RFP or RFI process periodically.

9 Depending on the provider and plan sponsor, we generally recommend engaging in an RFP process about every three to five years. While not regulatorily essential, issuing a vendor RFP has tremendous benefits and demonstrates a high degree of fiduciary prudence. The RFP process can help you determine whether your provider is giving you an optimal level of service for the price being charged and can either validate that your current partner is the best fit or indicate if this is not the successful RFP process depends largely on preparation and organization. Identifying your goals and objectives, setting minimum qualifications, prioritizing scoring criteria, and defining the project timeline will set the stage for a positive outcome. Consider enlisting help with the RFP process having a third-party organization run and manage the details can allow the committee to focus on evaluation and decision-making.

10 Use the checklist on the following page to help construct and score your RFP construction will impact the responses you receive. There are a variety of tools and templates that can help, as well as using third-party assistance. When crafting your RFP, following are a few things to keep in mind: Communicate your expectations; by narrowing the expected scope of service, you will achieve a more level comparison. The more you customize the RFP to your plan , the more relevant the information you will receive. Provide information about your plan to encourage responses that are specific rather than general. Allow some flexibility in the service model to allow providers to make recommendations and offer services they believe may be relevant. Consider including an additional services section, in which providers can outline the services they would offer outside of those requested in the scope of services.