Academic journal article Journal of Accountancy

Help Clients Keep 401(k) Plans Up to Date

Academic journal article Journal of Accountancy

Help Clients Keep 401(k) Plans Up to Date

Article excerpt

Often the responsibility to review a company's retirement plan falls on its accountant. CPAs can use this checklist to help their employers or clients determine whether they should update their 401(k) to meet participants' needs. The following suggestions address plan investments, administration, communications and, more important, the sponsor's fiduciary responsibility.

To ensure a 401(k) plan is up to date, CPAs should advise clients or employers that sponsor such plans to

[] Maintain an investment policy statement. This document establishes the plan's criteria for monitoring investments, the performance expectations, the process of reviewing investments and the benchmarks to guide investment changes.

[] Provide a diversified menu of investment options. Plan sponsors should offer a minimum of 12 choices to allow participants to diversify across all investment categories--value, blend, growth and fixed income.

[] Offer investments from a variety of mutual fund families. Companies usually allow employees to select investments from among several families, not just one: This provides additional diversification. Also, as fund families have different investment philosophies and areas of expertise, they can include the top performers in each investment category. For participants who have no interest in actively monitoring their investments, providing asset-allocation funds based on age and risk tolerance also is a good option.

[] Review investment selections at least annually to ensure they continue to beat established benchmarks. Questions plan sponsors should ask themselves include

* What are the criteria for adding and deleting investments?

* When was the last time the plan added or deleted an option?

A plan that hasn't recently added or deleted an investment choice may signal that it doesn't replace underperforming funds on a timely basis. …

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