Fiduciary Documentation Checklist

As defined contribution (DC) plans increasingly consider the inclusion of alternative investments, such as private equity, real estate, and infrastructure, plan sponsors and fiduciaries face a complex regulatory and operational landscape. The process requires careful documentation, thorough risk assessment, and ongoing monitoring to ensure compliance with fiduciary standards and regulatory guidelines. Understanding the key steps and best practices for integrating alternatives is essential for making prudent decisions that benefit plan participants.

Below is a Fiduciary Documentation Checklist:

• Decision-Making Process

  • Document the rationale for including alternative investments.  

  • Record all steps taken to evaluate options and structure.

• Risk Assessment

  • Assess and document risks related to cost, volatility, liquidity, and litigation.  

  • Evaluate operational feasibility, including recordkeeper capabilities for non-daily-valued assets.

• Valuation and Liquidity

  • Document how valuation and liquidity for private assets will be managed.  

  • Ensure procedures for periodic liquidity and participant-level trading are clear.

• Fee Reasonableness

  • Compare fees for alternatives against appropriate benchmarks (not just public market funds).  

• Manager Selection and Monitoring

  • Record criteria for manager selection.

  • Document ongoing monitoring procedures and criteria for replacing underperforming managers.  

• Regulatory Compliance

  • Reference applicable ERISA standards and Department of Labor guidance.  

  • Note any pending regulatory guidance and plans for compliance.  

• Participant Access and Operational Concerns

  • Document how alternatives will be offered (e.g., embedded in target date funds or managed account solutions).  

  • Address any nondiscrimination or accredited-investor hurdles.

• Ongoing Review

  • Establish a schedule for regular review and updates to documentation.

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In summary, the responsible inclusion of alternative investments in DC plans demands a measured and well-documented approach. Sponsors and fiduciaries must assess risks, evaluate operational feasibility, and maintain compliance with ERISA and Department of Labor standards. By establishing clear procedures for manager selection, fee benchmarking, and ongoing review, and by waiting for regulatory guidance before implementation, plan sponsors can position themselves to enhance participant outcomes while effectively managing risks.

Bridgebay Financial, Inc. provides consulting to employer retirement plans, including 401(k), 403(b), 457, profit-sharing, and defined contribution plans, focusing on investment policy statements, committee charters, asset allocation, and fund selection. The firm’s guidance is delivered through Retirement Committee consultations and does not include discretionary account management. Bridgebay creates disciplined Investment Policy Statements to support plan governance and regulatory compliance, reviewing them annually to help fiduciaries meet their responsibilities. They conduct asset allocation and gap analyses to ensure diversified, efficient fund lineups, and evaluate fund menus for cost-effectiveness and alignment with participant needs, including socially responsible options. Ongoing monitoring, fee analysis, and user-friendly reports help sponsors optimize plan value and make informed decisions through prudent oversight.