Investment Policy Statement

[Guest Kconsultant]

My client has an IPS in place. If the retirement committee places a fund on their "watch list" because it has violated a performance measurement criteria (shows up in the lower 50th percentile for a rolling three year period) - do they have a duty to inform participants?

To broaden this question - do they have a duty to share any, or all, of their findings from their semi-annual evaluation meeting?

Thanks!

[four01kman]

Aren't we revisiting the "prudent fiduciary" issue? If the fund (or other secuity) is placed on a "watch" list, why wouldn't you advise the participants? Give them the same information as was used to come to that conclusion, and let the participants make the same kind of choices. Do they want new money to go there, do they want their existing investments to stay there?

If you don't notify the participants now, and later decide to remove the investment (after, of course, it has lost some value), is there the possiblity of a recovery suit?

My recollection is the courts have come down for both sides, depending on the facts and circumstances. But, if you have a 404© plan, why wouldn't you advise participants?

[Jon Chambers]

To answer your questions directly, no, and no--at least not any "duty" specified in the Code or regs.

I'd suggest you have a problem with your IPS. Any criterion that states funds must continually be in the top 50% of their category WILL be violated at some point in time. In my opinion, this criteria should simply trigger a committee review, but not formal probation or replacement. We write a lot of IPS, and believe that such a mechanical criterion is contrary to the goals of most plans.

There is no duty to share the results of the evaluation. Generally, these discussions are not relevant to most rank and file participants, and we recommend that minutes/reports etc. be kept private.

Finally, if the fund has been placed on a watch list, you might want to communicate that fact--it shows good faith, and if the fund is replaced, participants received more notice.