Retirement Topics - Investing Plan Assets

 

In setting up a qualified plan, employers arrange how the plan's funds will be invested to increase and protect its assets.

Although there is no list of approved investments for retirement plans, there are special rules contained in ERISA that apply to retirement plan investments. In general, a plan sponsor or plan administrator of a qualified plan who acts as a fiduciary is required to exercise the judgment that a prudent investor would use when investing for his or her own retirement.

In addition, certain rules apply to specific plan types. For example, there are different limits on the amount of employer stock and employer real property that a qualified plan can hold, depending on whether the plan is a defined benefit, a 401(k) or another kind of qualified plan.

Certain plans, such as 401(k) plans, permit participant-directed investment. With participant-directed investments, a plan must offer at least three diversified options for investment, each with different risk/return factors, and the participant can choose how to invest his or her account assets in those options.

There are also certain restrictions on investment choices. For example, both participant-directed accounts and IRAs cannot invest in collectibles, such as art, antiques, gems, certain coins or alcoholic beverages. They can invest in certain precious metals only if they meet specific requirements.

The Department of Labor Employee Benefits Security Administration provides guidance and oversight in the proper investment of certain retirement plan assets. Neither the plan, trustees nor fiduciary are held liable for poor performance of the investments if prudence was used to select the investments. Therefore, any losses of account value are born by the affected participants in the plan

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