Shedding Light on PRISM

In optics, a prism is a device made of transparent material that is used to reflect light into its component colors. A prism can also be adapted as a special lens capable of correcting vision defects. Glass collectors seeking high quality crystal look for the telltale prism – the multiple facets in cut glass that cause it to shine.

Similarly, the PRISM ( Portfolio Review & Investment Selection Manager ) provides 401(k) Plan Sponsors with the data, analysis, and processes needed to clarify the quality of each component
 

fund. Like the special lens, PRISM is designed to detect any defects in the portfolio so that they can be corrected. Plan sponsors are given the opportunity to identify the criteria – or facets – that are important to them. The resulting analysis enables them to create and maintain well-diversified portfolios, maximizing the success of their company retirement plans -- and allowing them to shine.

Recent high-profile cases have created a heightened awareness of due diligence requirements and the potential for fiduciary liability. PRISM provides a practical solution – ensuring

that appropriate processes are implemented and documented. These processes can be used for initial mutual fund selection as well as the periodic monitoring of both individual investments and overall portfolios. Using standard industry measurements calculated by independent analysts, PRISM identifies the set of monitoring criteria and allows plan sponsors to define acceptable levels of performance. During subsequent reviews, PRISM identifies if shifts in performance or asset classes have caused a previously acceptable portfolio to fall outside the desired objectives.

q 401k PRISM Asset Style Report – provides a graphic view of the plan portfolio’s coverage across the universe of equity and fixed income investment styles

q 401k PRISM Detail Fund Report – provides a one-page snapshot of additional information for each fund in the plan

q 401k PRISM Portfolio Snapshot Report – provides a detailed multi-paged graphical analysis of the entire portfolio and its components

q 401k PRISM Portfolio Investment Selection Report - provides comparisons of up to 300 funds by a particular vendor, measuring and comparing each fund to it's peer average and benchmark and providing weighted scoring of the funds for selection and addition to a plan.
 

Each of the above Portfolio Review & Investment Selection Manager reports utilizes a set of monitoring criteria previously identified by the Plan Sponsor. Ideally, these criteria are identified in a company’s previously defined Investment Policy Statement (IPS). The “Investment Policy Assessment Criteria” page at the end
of this package shows the list of available criteria. The top portion identifies the investment criteria for individual fund assessments. Plan Sponsors select the ten fund-specific criteria and thresholds to be used in monitoring each fund’s performance. The bottom portion of the “Investment Policy Assessment Criteria” page contains the criteria used

in assessing the overall portfolio, and Plan Sponsors select the thresholds for each. The items in bold represent the criteria and thresholds recommended, but Plan Sponsors can choose those that best meet their requirements. Monitoring criteria typically compare a fund against its peers or against a benchmark. The peer group values represent the averages for all funds within a Morningstar© category. A Morningstar category is a group of funds that have similar holdings and investment styles. A benchmark is a commercially published portfolio of stocks representing a sector of the economy. For example, the S&P 500 Index measures the share-price

performance of a representative portfolio (selected by an S&P committee) of 500 of the largest publicly traded corporations in the United States. The most relevant benchmark is included within each Morningstar Category grouping of funds in the portfolio. The selected criteria are then used to generate the PRISM reports. When the individual criteria are met, the value is displayed on the reports in green shading. If individual criteria are not met, the value is shaded yellow. The criteria can be grouped into two categories: Individual Fund Assessment and Overall Portfolio Assessment. The options for each are described below.