Case Studies

Case Study for Retirement Plans


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Investment Line-up

The Issue

While selecting investments, the client’s Investment Committee wanted to retain as many of their existing funds that have performed adequately to minimize disruptions to plan participants. The Committee also was unsure whether or not to “map” investments during the transition from their current provider to the new platform.

The Solution

A significant amount of time was dedicated to the investment selection process on the part of Summit Financial and the Investment Committee, reflecting a tremendous amount of commitment on the part of both business partners to ensure that the Plan contains some of the very best mutual funds the marketplace has to offer.
One of the primary motivations in moving to the new platform was the ability for the Committee to select funds from an almost limitless list of fund families, offering significantly more opportunities for plan participants.
There was considerable discussion regarding the total number of funds that would be included in the plan. It was agreed upon by the Committee that the number of fund selections contained in the “core menu” would not become problematic because a second investment strategy would be made available to participants who wish to keep it simple and have their investments managed for them based on their expected retirement dates. The alternative option is referred to as either “managed account option” or simply “target date funds.” Target Date funds are a series of mutual funds whose equity/debt mix is dependent on the expected retirement date specified by each fund. The stock/bond mix is adjusted to predetermined proportions as the specified expected retirement date becomes closer.

There was careful consideration to the fact that changes to the investment portfolio will result in changes to plan participant investment elections. The Investment Committee wanted to retain as many existing funds as possible to minimize disruptions to existing plan participants; however, in situations where the Plan could improve, the Committee elected to replace the investment options that have been inconsistent performers in the past.
The Investment Committee opted to collect investment election forms from all Plan Participants during the transition process and to avoid “mapping.” The rationale, explained by Summit Financial representatives, is that a “mapping” strategy perpetuates incorrect or inappropriate asset allocation policies that may have been adopted by plan participants. Instead of “mapping”, Summit felt that it is more prudent for fiduciaries to collect revised investment instructions from all plan participants once they have had a chance to participate in Summit Financials investment education seminars.

A qualified default investment alternative (QDIA) was selected for the plan and will include the target date funds to be used in the event that plan participants do not return enrollment materials.

The Summary

The professionals at Summit Financial assisted the Investment Committee in the screening and selections of the investment options. Representatives from Summit also coordinated a series of seminars with the goal of educating the employees so they can understand what they need to do to accumulate appropriate income replacement levels at retirement.

The preceding are hypothetical case studies and are for illustrative purposes only. Actual performance and results will vary. These studies do not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental.