closing investment options

[Guest Keith N]

Assuming I have a well diversified 401(k) plan that currently offers 20 different investment funds and I would like to get rid of a few funds that share very similar investment strategies in order to make the election process a little easier for the participants, can I, as the trustee, just do it?

In other words, say I have Windsor and Windsor II. Can I just tell everyone in Windsor that we're closing out the Windsor option and that all their money will be moved to Windsor II, unless they direct it otherwise?

Is there anything I need to be aware of? Are there any sites that state that I can't do this? I was sure this was not a problem, but I've heard from several people who said I couldn't do it.

[mbozek]

There is no legal restiction on changing options since investment options are not protected benefits under IRC 411(d)(6). Secondly, employer can alway change investment options when fund families are substituted, e.g, adoption of a new plan because the fund trasfer has to be mapped.

There may be a problem if a fund has some deferred charges,e.g., variable annuity, which will be incurred if account balances are removed before some end of a specified period. Otherwise, the only question is what do the plan documents say about changing/eliminating funds-- is it a decision within the discretion of the plan fiduciary/ investment committee or is it necessary to amend the plan?

[Guest JimJ]

I agree with everything Mbozek had said. I would add that you should document the reason for the change and perform the necessary due diligence to back up the decision. I would also suggest that you reduce to writing a formal investment policy statement. I believe a sample is available from the PSCA website.

Lastly, make sure that ample notice is provided to your employees.

JimJ

[Guest JAller]

I have a similar situation and would like to know what % of plan administrators choose to map the assets of the closed funds versus charging the participants with this responsibility. Does anyone have any benchmarking information? The funds being closed are consistent with the investment policy statement, however we want to know what others are doing.

[Guest JimJ]

We have our clients mapped 100% of the time. If the fund is fired following the investment policy statement, why would you allow the fund to remain in the plan for participants to invest? Also, why would you keep two funds within the same asset class in a plan? This will only confuse participants. The key issue is communication with a clear and concise explanation.

[actuarysmith]

I think that you would have to map. The other alternative would be to force participants to fill out new investment election forms. This could be a time-consuming and onerous task if there are many participants, or multiple locations.