Investment menu

What an investment menu is

A typical menu has a target date series, index and actively managed funds across the main stock and bond categories, and a capital preservation option. Some plans add a brokerage window for participants who want a wider choice. The plan also names a default investment for people who make no election.

Why it matters to employers

ERISA requires the people who choose the menu to act prudently and in participants’ interest. In practice that means a documented process for selecting funds, reviewing them on a schedule, checking that fees are reasonable and replacing funds that no longer fit. You can take advice from a 3(21) adviser or hand the decisions to a 3(38) investment manager, but you still have to monitor whoever you appoint. Offering at least three diversified options is also one of the conditions for ERISA section 404(c) protection.

Example

A plan committee reviews the menu once a year against benchmarks and fees for similar funds. It replaces one fund that has lagged and records its reasons in the minutes.

Common mistakes

• Choosing the menu once and never reviewing it.

• Adding funds because an employee asked, without any review.

• Relying on a provider’s fund list without knowing who is the fiduciary for it.