Academic journal article Journal of the International Academy for Case Studies

Instructors' Notes Making the Most of Your Money: Evaluating Employee Retirement Plan Fund Performance

Academic journal article Journal of the International Academy for Case Studies

Instructors' Notes Making the Most of Your Money: Evaluating Employee Retirement Plan Fund Performance

Article excerpt


1. Evaluating the different types of funds offered by a plan carrier.

2. Analyzing performance measures for various types of mutual funds relative to the appropriate benchmark.

3. Weighing the importance of fund fees versus fund performance and diversification.

4. Evaluating performance of a target date fund versus alternatives.

5. Analyzing differences in the approach for evaluating bond funds vs. equity funds.

6. Selecting from among alternate plan carriers.


The main purpose of this case is to familiarize students with the most common mutual fund performance measures and provide an opportunity for them to evaluate and compare similar funds offered by different companies. This is a skill they will most certainly need for themselves in selecting funds for their own workplace retirement plans as well as selecting funds to recommend to their clients. Most intermediate and advanced investment texts will include a discussion of the calculation of average annual returns, cumulative returns, standard deviation, beta, alpha, Sharpe, and Treynor measures. More in-depth texts may extend coverage of performance measures to things like upside and downside capture, information ratio, or batting average. This case focuses on interpretation of these measures. To jump start a discussion of the topic, an explanation of the return, risk, and risk adjusted return measures for one sample fund is provided on the following pages. It is accompanied by point by point explanations of each performance measures. The instructor can make information for the sample fund available to students to examine as the class reviews the basic performance measures one by one before assigning the case. The sample small cap blend fund is one of the options listed in the case. The companies offering the 403-B plans as well as the fund names have been disguised in order to force students to use the information at hand rather than trying to find the analysis on a website. This case is a real life situation and the characters, funds, and data used in the case are real although they have been disguised.

Each of the measures discussed below may be found in Tables 1-4 of the case. The mutual funds available from each company are sorted by fund type so that students can compare all of the funds of a certain type with a best-fit benchmark. If students have already covered the material on performance measures, the instructor can skip the background on performance measures. This material is available simply to make it easier for the instructor to introduce this material, particularly in courses such as Entrepreneurship/Small Business Management or Human Resources where texts give little coverage to such topics.


In the Tables 1-4 of the case, the returns for different types of mutual funds and the returns on an index are provided. The index given has an investment objective most similar to that of the funds in each category. This index should serve as a benchmark for evaluating fund performance. The returns for the fund are net of fund expense ratio and 12b-1 fees not present in index returns. The first thing a client would be interested in is the return he or she earned each year and not simply whether it was positive or negative, but whether it beat the market as a whole, or a benchmark index that most closely matches the fund objective. When presenting results to a client, a picture is worth a thousand words. Many times it is easier for them to visualize performance with a graph than being overwhelmed with a table full of percentages. When presenting investment returns relative to some benchmark over time, a column graph is particularly useful. Students must evaluate the annual returns from a table, rather than a graph, so the instructor may encourage them to circle each year the fund outperformed the index as a simple measure to track consistency. …

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