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Due
Diligence is a much talked about item in the 401k market
recently. Much of the conversation stems from the Enron and
WorldCom plans, where company stock was the primary issue.
However, for most small plans, company stock is not a part of
the plan. And yet, 401k Due Diligence is a primary issue.
While the Enron and
WorldCom plans initiated the conversation on 401k Due Diligence,
the topic has broadened to Fund Performance, Expenses,
Education, and other issues. It is our position that “poor
performance (relative to peers)” will exacerbate all other
issues and bring the 401k Due |
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Diligence process to a greater
scrutiny.
401k Prism’s PRISM
Analysis Report (PAR) examines each specific fund’s performance,
risk, and consistency, and highlights quality funds. Conversely,
it also spotlights any funds that are performing at a lower
level than the rest of the plan. When the entire list of funds
is evaluated on a regular (annual) basis, and appropriate adjustments made from
the money manager, the 401k plan enjoys higher returns. Further,
regular evaluation generally results in an annual turnover rate
of 12%-15%.
The full Due
Diligence process |
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will involve more than returns.
BenefitNews.com has an informative
article on the process. The larger the 401k Plan assets, the
more of this list the Plan Sponsor will want to use. The first
step in a 401k Due Diligence process is to create an
Investment Policy Statement
(IPS). 401k PRISM can provide wording to integrate into the IPS
document and provide multiple year subscriptions for the PAR.
Further, the 401k PRISM Report
Card compares the
401k Plan lineup of funds with other plans to evaluate
the overall quality of funds. It is the first step in the
Due Diligence process. |
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