Need to Make Investment Decisions for Your 401(k)? Don’t Go It Alone.

Learn how Morgan Stanley at Work can help plan sponsors meet fiduciary obligations and take a look inside our 401(k) investment decision-making process.

As a workplace retirement plan sponsor, you’re playing an important role in helping employees reach their long-term investment goals, as well as attracting and retaining top talent for your organization.

With that role, however, come some big responsibilities. First and foremost is your responsibility as a fiduciary. This is your requirement under the Employee Retirement Income Security Act of 1974, as amended (ERISA) to prudently select and monitor 401(k) plan investments and maintain a well-documented process for those investment decisions.

Without a professional background in managing investments, this might seem overwhelming. But we’ll show you how Morgan Stanley at Work can help you feel equipped to make the best decisions for your people, and we’ll break down our process for selecting retirement plan investments.  

As a fiduciary, you’ll need to choose a menu of investments that best meets the needs of your employees, make sure the funds remain appropriate over time, and ensure that expenses are reasonable.

To fulfill these requirements, a Morgan Stanley Financial Advisor can assist you in establishing an investment policy statement, work with you to analyze investment options, and help you create a framework for monitoring investments, including the review of both performance and expenses.

One of the most critical decisions we can help with is selecting and monitoring target date funds (TDFs) that function as qualified default investment alternatives (QDIAs) within your 401(k) fund lineup. A QDIA is the investment that’s automatically used when an employee contributes to the plan without specifying where the money should be invested. It helps ensure that every plan participant—even those who don’t make investment elections—is invested in a well-diversified portfolio with an appropriate time horizon.

Allocation is an important determinant of investment results—responsible for up to 90% of differentiation in returns.¹ That’s why we employ a rigorous, highly analytical process to evaluate and choose TDFs that are appropriate for retirement investors. Here’s how we break it down and help make the process simpler as we work with plan sponsors.

First, we look at the asset allocation strategies of various TDF options through the lenses of four different metrics:

• Glidepath Shape—how the fund shifts its equity allocation—the portion that’s invested in publicly traded stocks—as participants get closer to their target retirement date.
  
• Goal Attainment—the probability of the fund’s success in meeting a target retirement income replacement.
• “Lost Decade” Risk—the potential impact of long-term adverse events, like the near 0% market returns between 2000 and 2009, caused by the financial crisis.²
• Drawdown Risk—the potential impact of short-term adverse events, like the COVID-19 equity selloffs in February and March of 2020.²

Once we understand participants’ risk preferences, we can weight these metrics and rank funds relative to your employee demographics or your plan’s risk preferences.

Using a forward-looking analysis, like the process outlined above, is an important part of selecting target date fund manager or any QDIA fund manager. But it’s not enough.

That’s why the second part of our process is to qualify the fund manager themselves—looking back at their track record and quantifying the value they’ve historically provided their investors.

To do this, we construct a fund or fund family-specific benchmark for each TDF under consideration. Then, we measure each manager’s value-added against this benchmark, looking at a combination of five factors:

• Asset class inclusion and weighting decisions, for example, a higher-than-average weight to non-U.S. stocks
  
• Glidepath decisions, such as the timing and degree of risk reduction as investors age
• Tactical asset allocation decisions, meaning short-term, responsive shifts in asset allocation
• Security selection decisions and the interaction between them and asset allocation decisions.
• Fees charged

When considering a retirement benefit for your employees, it’s important to understand what you’ll be expected to provide as a plan sponsor.

Fiduciary responsibility can feel overwhelming, but by working with a Morgan Stanley Financial Advisor, you can adopt an investment fund lineup for your plan that’s guided by Morgan Stanley’s rigorous research process and standards.

With more than 85 years of investment experience, we can help deliver the retirement plan oversight, advice, research and selection you need to meet your fiduciary obligation—without having to sacrifice any focus on your business.

What’s more, we’ll make sure you fully understand and feel comfortable with our investment decision-making process, so you can rest easy knowing you’re making thoughtful choices for the people who rely on you.

Learn more about Morgan Stanley at Work’s comprehensive range of retirement services and solutions, and talk to a Morgan Stanley Financial Advisor about your corporate retirement plan today.