The policy as approved by the Vista 401(k) Advisory Council. The Advisory Council (AC) consists of at least one (1) representative of each Plan Sponsor. The Council meets at least once a year. The purpose of the meetings is to discuss fund performance and any recommendations for improvements to the plan.
1. Selection of Mutual Fund Companies
In general, the following elements are used to consider whether a fund company’s products will be considered for plan inclusion:
1. General reputation, size and degree of investor recognition (we refer to it as “panache”)
3. Financial stability
4. Absence of current regulatory issues, consumer driven litigation against them, avoidance of scandals such as after-hours trading, bid rigging, kick backs, etc.
5. Experience and commitment to offering funds that are suitable for retirement plans
6. Willingness to partner with government sponsored voluntary participation retirement plans
7. Execution of confidentiality agreements relative to participant’s names and data
8. Commitment to supply timely information to FBMC Benefits Management for our use as well as participant’s needs
9. Access to their fund managers and assignment of account managers for the Vista 401(k) Plan
2. Categories of Funds by Lipper Investment Objectives
Originally (2000), it was thought that only one fund would be selected for each of several Lipper categories and that approximately a dozen funds would be selected. In the ensuing years, some to the funds have changed their objectives and drifted into other categories, often occupied by other selected funds. If the performance and other evaluation criteria of these funds are reasonably comparable to the selected fund for the same category, they may not be deleted. The same process will be used with Morningstar categories.
The categories were designated based on the suitability for a retirement plan of, in general, unsophisticated investors, and exclude fund inclusions that are aimed at traders rather than long term investors who should not be making frequent trades and continual repositioning of their holdings. Rebalancing, once or twice a year is suitable for most circumstances. Trading is discouraged and funds which are of a speculative, volatile or designed to be traded, are not considered.
Types of funds that are not considered are:
- Limited geographic
- Closed Funds
- Private equity
- Funds designed for corporate takeovers or M&A
- High beta
- Include trading devices such as derivatives, options, warrants, packaged investments, non-government asset backed securities, as examples
- Insurance company products such as variable annuities and the mutual funds that are created by those companies to fund the annuities
- Proprietary funds sold by brokerage firms
- Life insurance including plan completion insurance
- Funds managed by non- USA companies (non- USA investments, included in funds managed by USA domiciled companies that are regulated by the SEC, are acceptable)
- Junk or non-investment grade bonds dominated funds
3. Initial Threshold Selection Criteria for Each Fund Company
1. Must be in existence for 10 or more years
2. Over 100 million dollars in assets
3. Experienced and tenured management
4. History of adhering to investment objectives
5. Avoidance of “chasing returns” i.e., temporary inclusion of short term investments that are inconsistent with other portfolio investments, for the sole purpose of boosting short term returns
6. Above average industry and rating agency reputation
4. Specific Fund Selection Criteria
1. Emphasis on long term performance rather than short term (Lipper ratings are monitored but not used in the evaluation process)
2. Low beta as compared with category peers. Lower average P/E ratios of holdings than peers, except for Growth funds
3. Positive alpha
4. 1, 3, and 5 year performance
5. Portfolio turnover that is lower than peers
6. Benchmark performance that is comparable or superior (positive alpha)
7. Diversification of holdings, particularly with regard to not having too much concentration of overall holdings in the fund’s top ten investments
8. Decent short term performance and, if needed, a stated plan to rebalance after periods of underperformance that is consistent with the fund’s stated objectives and historic principles
9. Avoidance of style drift and “chasing returns”
10. Exclusion of non- conforming investments such as derivatives, options and other devices that are designed for trading and are not long term investments
11. Emphasis on dividend paying stocks or quality bonds in relevant funds
12. Lower investment management fees than peers, generally 1% annually or less
13. Inclusion of any investment in the fund that may be allowable by the SEC rules but that FBMC Benefits Management deems inconsistent with the funds stated investment objective, such as corporate issues of asset backed bonds in a government bond fund
14. No surrender charges or any form of contingent sales or redemption charges
15. If class A shares are selected, loading charges of any sort are waived
5. Consideration for Delisting a Fund
1. If a fund continues to meet policy criteria and performance falls below its benchmark for any sustained period, then it will be placed on a “watch” list and continual monitoring will take place including interviews with fund company representatives and investment managers.
If during the period of approximately one year (or at least through some identifiable investment activity cycle) no improvement is seen, relative to peer comparable performance, then the fund may be placed on the “not recommended list”.
If the fund continues in this underperformance mode, it can be deleted and participant’s future contributions and existing assets will be “mapped”, which means being transferred to the remaining, or newly added, fund that is within the same Morningstar category of the fund which is being deleted, or, if appropriate, from the Morningstar category that the deleted fund “drifted from” if that is one of the reasons for deletion. Advice and recommendations will be sought from the AC before such action is taken.
Participants will be given ample notice of the mapping and provided a convenient opportunity to move their contributions to any other funds in the plan rather than be mapped to the selected alternative fund.
If the fund no longer meets policy criteria in any significant or material manner, and after discussions with fund company representatives, FBMC Benefits Management determines, based on the company’s representations and our own investigation, that it will no longer adhere to or meet policy criteria, then the fund may be deleted from the plan after seeking advice and recommendations from the AC. Participant’s contributions and assets will be mapped, using the same processes described above.