On May 18th, the Supreme Court handed down a unanimous ruling in the case of Tibble vs. Edison International. While there is still much to unfold, what was made clear is that plan fiduciaries have an ongoing duty to monitor the investments offered in their defined contribution plans and remove imprudent investments. This duty is separate from and in addition to their duty to prudently select those investments in the first place. What’s left to be interpreted by the lower court to whom the case was sent back is “what the shape and scope of the duty to monitor actually entails.”
With this recent ruling, the buzz in the national media and on social media can make the act of being a fiduciary to a qualified retirement plan seem like a precarious position to be in at the moment. However, I would suggest that there are steps you can take to protect yourself and the other fiduciaries from claims of breach of your fiduciary duties. In fact, if you have a good service team in place to assist you with your duties as the Plan Sponsor, Plan Administrator, Plan Trustee, etc., you may have already implemented procedures that will help you. If you don’t have a good team in place assisting you, now is the time to look into that.
The first step you can take should be obvious, considering the decision in Tibble vs. Edison. Monitor your investments. Periodically (at least annually, and I would suggest more often than that) review the investments you are offering. Review their rates of returns and expenses. If some of them are not performing or appear too costly, put them on a watch list and review them more frequently. Remove the investments that need to be removed. Most importantly, document your review procedures and your reasons for adding, removing or keeping certain investments. Your investment advisor can assist you with this. Your plan’s custodian/record keeper can likely provide you with reports and tools to make the act of reviewing the funds and documenting your review easier.
Secondly, you should benchmark your plan every few years. Ask your investment advisor to assist you in analyzing the returns and expenses of the funds offered in your plan, along with the recordkeeping fees being charged by the custodian and/or record keeper. Then, ask him/her to help you compare those returns and expenses to what you could find elsewhere in the market place. As the fiduciary, you have a duty to benchmark and review any returns and/or expenses that can affect the participants’ outcomes. This does not mean that you have to use the funds with the highest rates of returns or the lowest cost providers. It simply means that you have to ensure that the expenses are reasonable and there is value for the cost.
In an article posted on planadviser.com, Jesse Gelsomini also suggests the following:
“Each employer could review the 401(k) plan’s investment policy statement to ensure that it contains clear guidelines specifying how often the responsible plan fiduciary must perform a comprehensive review of investment alternatives, even absent an intervening change in circumstances. The policy may also specify the proper steps to remove an investment if it is deemed imprudent, Gelsomini says. One thing to note is that, once language about periodic investment reviews is placed into the policy statement, it’s absolutely critical to ensure the plan operations match what is written down.”
Following these simple guidelines is a great step in the right direction; however, if you’re still unsure about your duty as a fiduciary to your plan, or if you have more questions on monitoring your plan, contact your financial advisor.
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There are several other great tips and advice articles in our blog so I welcome you to dig through the archives and read up!