Excellent episode with Jason Roberts, ERISA Attorney and Founder of the Pension Resource Institute and the Retirement Law Group. He shares tremendous insights and valuable perspective to help employers understand the full scope of their fiduciary responsiblities, other than monitoring plan investments. Also, as you will see below, 90% of recent 401(k) lawsuits are coming from another often overlooked category.
If Jason had a nickel for every time he said “Prudent Process” is the most important thing to protect plan fiduciaries, he would be rich!
Fiduciary Governance is important for employers so you are making good decision for the plan participants.
It also provides protection for plan fiduciaries.
ERISA does not require you to be perfect or even have to arrive at an optimal outcome if you have a good process to support your decisions.
Lawsuits have several stages to them, if can produce documentation to show a well thought out process that relies on third party experts, there is a chance a litigator will move on to another case rather than dig in.
Recent case law has supported that a well structured prudent fiduciary process has helped plan sponsors get some claims dismissed even when the outcome of the decision was not optimal.
Having a properly structured plan committee is the foundation of a strong fiduciary process.
Reviewing and monitoring investments is important, but not the only responsibility of a 401(k) Committee.
“Selection and monitoring service providers” and “Administration and reporting” are two areas that do not get enough attention by plan fiduciaries.
90% of 401(k) lawsuits are stemming from the failure to select and/or monitor of service providers.
Jason is not aware of a single 401(k) case that has risen from investment performance alone.
However, adherence and structure of investment policy statements are different.
IPS should address
Mutual fund share class
Investment philosophy (active, passive, mix of both)
Target Date Fund selection and monitoring
Plan sponsors allocate 90%+ of their time to analyzing investments, over the course of the year allocation of time should be closer to a third of their time between investments, service providers and administration.
As it relates to evaluating plan fees, looking at cost in a vacuum is meaningless, real focus should be on determining reasonableness in light of value for services provided.
When structuring your 401(k) committee, it is important to include members who have the collective strength and expertise to address all three areas of fiduciary responsibility.
Committees may designate members as non-voting (or non-fiduciary) if they are going to provide support or other services to committee members.
Even though many service providers will offer to distribute or take on some administrative services, the buck still stops with the plan fiduciaries to ensure the delivery and notification requirements are met.
Document your process, if you are taking all the right steps and discussing all the right things, if you don’t document it, does not matter if your fiduciary actions are called into question.
In terms of the level of detail, less is more so long as you have sufficient information in your fiduciary file to support that you are meeting your responsibilities. Too much detail can create more harm than good.
Unresolved agenda points or open items in meeting minutes are red flags.
401(k) litigation is shining the light on deficiencies in service provider monitoring, specifically share class and revenue sharing.
Fee allocation is important. Will the company pay? Will the participants pay? If the participants pay, will fees be assessed either on a pro-rata or per-head basis?
Determine if your Plan Document says something specific about how plan fees are to be allocated.
All expenses do not have to be allocated the same way.
Not all plans need a full blown fee policy statement. If one is in place and not followed, it is another potential area of exposure.
If you have competing perspectives within the committee on a particular decision, document the struggle the committee was having coming to a conclusion. It can be another example of good process. However, ensure the decision is not made with only the fiduciaries’ best interest in mind!