Next Steps for ERISA Investment Fiduciaries in Light of SCOTUS Ruling
The recent Supreme Court ruling regarding 401ks has many employers questioning if they’re doing the right thing when it comes their retirement plans. This ruling puts fiduciaries on notice that they have a continuing duty to monitor plan investments and remove uncompetitive ones. Under this new ruling, fiduciaries must not only evaluate investments while selecting them, but also will need to continue to regularly monitor these systematically.
But, what does it all mean? Below I’ve spelled out in plain English a list of things all employers should be doing to ensure their employees’ retirement savings are protected:
- Review your plan's current investment offering as soon as possible. This is particularly important in light of the Tibble case substantively being about plan cost/fees. To be clear, the Supreme Court didn’t hold that retaining a higher fee fund in and of itself represents a "continuing" breach or violation of fiduciary duty. Rather, it held that there needs to be an appropriate level of oversight and action with respect to an “allegedly” imprudent fund/investment. Essentially, if it's been a while since the last investment and or cost/fee review, or a review never has occurred, now's the time to get that done.
- Continue to monitor investments and remove unsuitable ones. The Supreme Court is crystal clear that monitoring investments is an ongoing fiduciary duty under ERISA. Your plan platform provider typically cannot assist in this process as they don’t want to assume ERISA fiduciary liability. Some providers offer services that take on 3(21) and or 3(38) fiduciary exposure. In the event they do offer a program that provides this oversight, please note that you still can be sued if you don’t monitor the work of that provider.
- If you’re considering adding or retaining investments/funds with high expense ratios, think twice (or maybe more). When the same fund is available in an institutional or lower fee class, you’re better suited to select that option. Utilizing funds that have higher fees may expose fiduciaries to a greater risk of suit for breach or violation of fiduciary duty.
- If you don’t have an investment committee for your retirement plan or an investment policy statement, it’d be prudent to establish both ASAP! The investment committee would be charged with selecting and monitoring the plan’s investments, including analyzing fees. The investment policy statement (“IPS”) would provide a set of guidelines for an investment committee to follow on how the investments (and fees) should be monitored and replaced – if applicable.
- Consider engaging a professional retirement plan consultant to advise you or the investment committee on performance, suitability and fees. "Benchmarking" of investment performance and plan-related fees has emerged as not only a fiduciary best practice, but also a key means of fiduciary self-protection. Fiduciary self-protection is primarily, if not all, about process and the avoidance of conflicts of interest. When selecting your consultant, you want to ensure they’re able to take on fiduciary exposure.
- Consider separating investment guidance to the Plan from investment guidance to plan participants. If you or the committee desires to hire a professional to offer investment guidance for the plan participants, think about hiring a different person from the professional individual that is providing investment guidance to you or the committee. Doing so avoids any potential conflicts of interest.
If you have any questions regarding 401ks, ERISA or investment strategy, contact a member of the ‘A’ Team today!
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