The Hunt for Sound Investment Management

Pension plan sponsors are conducting more due diligence than ever before to ensure that their assets are invested wisely.

The market timing scandals in the mutual fund industry have caused many companies that sponsor employee retirement plans to sit up and take a hard look at the people and organizations charged with managing and investing their plan's assets. Sponsors of 401(k) and defined-benefit plans have begun subjecting their investment management company's governance practices, internal controls, and policies and procedures to the intense scrutiny that they have always applied to their plan's investment performance. "Plan sponsors have always been concerned about an investment management firm's internal operations, but now there are also questions and concerns about market timing that we didn't hear a few years ago," says Bruce

Kosakowski, a Boston-based senior consultant with Mercer Investment Consulting Inc. Those concerns are prompting employers to conduct more frequent -- and more substantive -- due diligence to protect their retirement plan's assets.

"The emphasis has gone beyond performance," points out Vernon Meyer, vice president of investment products in the retirement services division of financial services provider MassMutual in Springfield, Mass. "Plan sponsors have a heightened concern about fulfilling their fiduciary responsibility and are doing everything they can to conduct all possible checks on money managers, including investment managers' standing with regulators and whether they have processes in place to ensure proper operations and performance."

Whether their goal is to evaluate their current investment management company or select a new one, plan sponsors need to design their due diligence process carefully, weighing their plan's needs and objectives as well as investment managers' strengths and weaknesses.