Colorado Retirement Association recently announced share class changes for three funds within its investment portfolio, effective March 31, 2020. That announcement can be read here.
With this announcement, you may be wondering how share class changes impact your retirement plan and why providers make share class changes.
As your retirement plan provider, CRA has a fiduciary responsibility to evaluate fees associated with the plan on a regular basis. With guidance from our investment advisor, Innovest Portfolio Solutions, and directed by our Board of Directors, CRA works to deliver on this responsibility in a variety of ways, including:
- Prudently selecting investment options – The CRA investment lineup is carefully curated to offer a variety of options to choose from with difference risk/potential reward characteristics. These funds have been through a due diligence process looking at both qualitative and quantitative aspects of each investment.
- Offering institutional-class funds – Similar to shopping wholesale, CRA leverages the bargaining power of its $1.7 billion in assets to offer many of these funds at a lower cost, when available, than employee participants could attain as individual investors.
- Measuring against industry benchmarks – Individual fund management fees, as well as plan administrative fees, are regularly evaluated against applicable benchmarks and similarly sized plans to ensure costs are reasonable and justified.
- Making share class changes when optimal – CRA continually looks for opportunities to shift to lower fees and better institutional share-class securities to help maximize returns for participants.
Mutual funds typically offer a variety of share classes. These share classes have the same investment objective and the same investment strategy with the same risk/potential reward characteristics; however, each class has a different fee structure which impacts their performance. The three share class changes that CRA announced recently represent changes in these fee structures within institutional classes. Given the bargaining power that comes with having $1.7 billion in assets, CRA is able to offer institutional-class funds across its portfolio. Institutional shares, which are only available to qualified investors, generally offer lower expense ratios that in turn reduces the cost of owning a fund.