COLLECTED WISDOM™ on Fiduciary Related News and Intelligence
These are general fiduciary news items. Other topical areas you may find of interest that are not fully covered here include ERISA 404(c) Compliance and Fiduciary Duty, 401k Investment Committees, Fiduciary Responsibility and Liability Issues, and DOL's Final Fiduciary Rule and Best Interests Contract Requirement.
ERISA was enacted before the computer age, and it has never been amended or interpreted to impose a specific duty on plan fiduciaries to maintain appropriate cybersecurity protections. However, fiduciaries should not have their heads in the sand about this issue. The duties of prudence and loyalty will likely be interpreted to include a responsibility to keep plan assets safe from hackers. A lawsuit recently filed against Estee Lauder Inc, its 401k plan committee, recordkeeper and custodian highlights some security flaws in plan distribution procedures and has the potential to make new law in this area.
Source: Cohenbuckmann.com, October 2019
There is fiduciary ramification raised when former employees leave their money in their old company's 401k plan. At the very least, employers have a responsibility to educate their former employees regarding their choices and clearly explaining the impacts of each choice available. Also, fulfilling the obligations of a plan sponsor can increase administrative costs when it comes to ex-employees. They still need to provide the required notices and ultimately keep track of them if they have moved.
Source: Fiduciarynews.com, October 2019
Selecting a target-date solution is a fiduciary act, and plan sponsors must work through the distinctions between custom and packaged approaches in order to decide which is the better fit for participants in their own plans. However, the choice isn't necessarily black and white. Here are five principles that can raise the bar for packaged target-date solutions.
Source: Alliancebernstein.com, October 2019
Michael Barry, president of O3 Plan Advisory Services LLC, discusses how differing views by courts in various ERISA cases results in no clear guidance.
Source: Plansponsor.com, October 2019
While mistakes may result in fines and penalties, misconceptions can lead to bad results for the organization and its employees. Bad advice from a plan sponsor's trusted third party, whether intentional or negligent, can produce inertia and a lack of trust in the entire system. Here are the top 10 fiduciary misconceptions based on importance or what is most common.
Source: Investmentnews.com (registration may be required), September 2019
Retirement plan committees and financial advisers need to pay attention to class-action litigation and settlements to better manage their fiduciary risks. Some of the claims in those lawsuits are obvious; others foreshadow emerging issues that warrant attention and, at the least, an analysis of plan practices.
Source: Fredreish.com, September 2019
ERISA plans can require resolving fiduciary breach cases through arbitration, a three-member panel of the 9th US Circuit Court of Appeals has ruled, citing recent Supreme Court decisions as nullifying the circuit's 35 years of precedent. Some observers are hailing the decision as creating a path for employers to resolve ERISA fiduciary breach claims without going to court. However, employers considering adding mandatory arbitration provisions to their plans should consult with legal counsel to better understand the potential impact of these provisions.
Source: Mercer.com, September 2019
As fiduciaries, plan sponsors should keep aware of the current legal setting around 401(k) plans. If applicable, sponsors should take steps to avoid the risk of facing similar lawsuits. A recent case deals with using the lowest cost index fund available.
Source: Riverandmercantile.us, September 2019
Fiduciaries often are aware of administrative and disclosure requirements, but sometimes become negligent when choosing funds with reasonable fees. Even those who are aware can inadvertently fail to select the best mutual fund. While 401k fees have decreased in recent years because of litigation and various DOL regulations, mutual funds can still charge indirect fees that DOL would deem unreasonable. Unfortunately, fiduciaries with little knowledge regarding fee structures may authorize a plan to charge fees, decreasing participant balances.
Source: Forbes.com, September 2019
For those who aren't experts in employee benefits law, plan administration or investments, fiduciary responsibilities may seem daunting. The multitude of administrative as well as investment duties can and often does trip up plan sponsors. But with the wide availability of fiduciary services, there is no need to fly solo in running a retirement plan.
Source: Massmutual.com, August 2019
This year has seen a number of fiduciary and best interest investment advice regulations at both the federal and state levels. Firms subject to these regulations will face challenges in dealing with rules that will impose a host of new obligations, and that may overlap and conflict with one another. This chart is intended to help firms take stock of the evolving framework and aid firms in putting the pieces together.
Source: Eversheds-Sutherland.com, August 2019
The Fourth Circuit Court of Appeals, in Dawson-Murdock v. Nat'l Counseling Group, Inc., has allowed a life insurance beneficiary to sue her husband's employer for breach of fiduciary duties concluding that she had sufficiently alleged that the employer was an ERISA fiduciary.
Source: Wagnerlawgroup.com, August 2019
The law firm of Schlichter Bogard & Denton, LLP filed papers opposing a motion by fiduciary defendants of the MIT Supplemental 401k Plan for a summary judgement in the suit initiated in 2016 as one of the first university excessive fee cases. Not only did they file papers, they issued a press release, drawing attention not only to the filing, but to an allegation made in the initial suit -- one that distinguishes it from the nearly two dozen such cases filed and fought over the past three years -- that there was a quid pro quo between MIT and Fidelity, the plan's recordkeeper.
Source: Napa-net.org, August 2019
The DOL allows plan fiduciaries (including employers, plan officials, and parties in interest) to voluntarily comply with ERISA by self-correcting certain fiduciary breach violations under its Voluntary Fiduciary Correction Program ("VFCP"). Nineteen categories of transactions are eligible for correction under the VFCP, and the DOL has issued guidance explaining acceptable methods of correction and providing examples.
Source: Boutwellfay.com, August 2019
Most plan sponsors have a pretty good handle on the benefits of having a diversified fund lineup. With the investment side of things long ago taken care of, 401k plan sponsors have a renewed focus on the three F-words of offering employee retirement benefits: Fiduciary, Fees, and Financial Wellness. Here's how plan sponsors answer questions related to each of these three F-words.
Source: Fiduciarynews.com, July 2019
A recent federal court decision should remind us all of the importance of plan committee education. The case involved a suit by participants in the SunTrust 401k plan that challenged the initial selection of, and subsequent acquiescence with, an ostensibly imprudent plan investment menu. The court's decision focused on one aspect of the case: the liability of "new" plan committee members for actions that predated their involvement on the committee but continued after their involvement.
Source: Napa-net.org, July 2019
Selecting an auditor for an ERISA plan is one of those fiduciary responsibilities which has been a continuing concern of the Department of Labor. If you are a plan sponsor with that fiduciary responsibility, here are a few mistakes to avoid in the auditor selection process.
Source: Retirementplanblog.com, July 2019
A federal judge has weighed in on a question relevant to new plan committee fiduciaries: When and how does their liability for the decisions of previous committee members begin?
Source: Napa-net.org, July 2019
While there are many prudence and cost-efficiency related issues relating to variable annuities overall, an emerging issue involves the plan sponsor’s ability to carry out its fiduciary duties under ERISA. Variable annuities usually include numerous sub-accounts as investment options. This increases the odds of finding sub-accounts that are not prudent and need to be removed.
Source: Iainsight.wordpress.com, July 2019
Study Finds That Determination of Fiduciary Breach Often Hinges on Whether Fiduciary Followed a Prudent Process
The Center for Retirement Research at Boston College recently released a study outlining the major causes of 401k lawsuits. In particular, the study focuses on the fact that these types of lawsuits often hinge on whether the plan fiduciary was following a "prudent" process and how one would define a process as prudent. With most companies now offering 401k plans as their primary retirement offering, it's wise to pay attention to the major findings and engage ERISA counsel to guide implementation of a fiduciary legal compliance paradigm to mitigate exposure to these costly lawsuits.
Source: Hallbenefitslaw.com, July 2019
This article considers how the SEC's new, detailed, and significantly higher standard of conduct rules for brokers may affect plan sponsor fiduciaries. In light of the new (and significantly elevated and detailed) broker standard of conduct rules, the application of the plan fiduciary's duty to monitor "whether the adviser continues to meet applicable federal and state securities law requirements" deserves special attention.
Source: Octoberthree.com, June 2019
Company fiduciaries have a duty to seek professional help with investments if they need it. An ERISA attorney who's spent over 35 years helping hundreds of 401k plan sponsors explains the choices and decision issues.
Source: Forusall.com, June 2019
Plan fiduciaries and retirement plan committees would do well to consider the trends in the ways that retirement plan funds are invested and the behaviors and attitudes of plan participants, recommends a recent analysis.
Source: Ntsa-net.org, June 2019
It started as an oddity last year when Fidelity loudly proclaimed they would begin offering "Zero" fee funds. Now the SEC has approved a "Negative" fee fund. A diligent fiduciary will nonetheless seek to kick the tires most thoroughly on "Zero" and "Negative" fee funds. It starts by analyzing the very motivation behind these financial product marketing innovations.
Source: Fiduciarynews.com, June 2019
Plan fiduciaries looking to avoid protracted court cases filed by their plan participants are trying to develop the best fiduciary practices. They are also considering other options to control or restrict litigation, including trying to require mandatory arbitration of ERISA claims, seeking to designate a specific court to hear cases, and setting shorter periods to file claims for benefits in their plan documents. The courts are still trying to define the extent to which there are limits on these practices. However, a recent court case highlights an additional option, obtaining releases from terminating employees that cover ERISA fiduciary breach claims.
Source: Cohenbuckmann.com, May 2019
When 401k plan sponsors are told about their duties in operating the plan, they zone out. So here is a breakdown of what plan sponsors need to know in order to curb their potential liability as a plan sponsor. They can minimize their liability by just following these eight easy steps.
Source: Jdsupra.com, May 2019
By all accounts, 2019 will see the advancement of a number of fiduciary and best interest investment advice regulations at both the federal and state levels. Firms subject to these regulations will face challenges in dealing with rules that will impose a host of new obligations, and that may overlap and conflict with one another. This 6-page chart is intended to help firms take stock of the evolving framework and aid firms in putting the pieces together.
Source: Sutherland.com, May 2019
In the marketplace, it's normal -- even expected -- that firms extend more favorable terms and/or discounts to those who do business with them across various offerings. But those "normal" practices can cause you trouble when it comes to doing business with ERISA-governed plans.
Source: Ntsa-net.org, May 2019
Failure to understand how they must operate exposes fiduciaries and plan sponsors to lawsuits. It also hurts participants who may have a plan that isn't run properly and has poorly performing and expensive investments. While there isn't any legal requirement that committee members have fiduciary training, Department of Labor auditors will ask about it. They also view training as an indication that the members take their responsibilities seriously.
Source: Penchecks.com, May 2019
There is a growing interest in including funds that emphasize environmental, social, and governance factors in 401k plan investment menus, in response (in part at least) to participant interest in these funds and the increased participant engagement they generate. What issues does inclusion of an ESG fund in the plan's fund menu raise for plan fiduciaries?
Source: Octoberthree.com, May 2019
Mutual fund companies usually make their funds available to 401k plans in multiple share classes. While all classes hold the same underlying securities, they can charge very different fees. In general, employers have a fiduciary responsibility to choose the lowest-priced share class available to their 401k plan so participant investment returns aren't reduced unnecessarily by avoidable fees. To meet this fiduciary responsibility, employers must be capable of evaluating share class fee differences.
Source: Employeefiduciary.com, May 2019
Plan sponsors may have a false sense of security when it comes to the fiduciary risk related to 401k loans. What they may not recognize is that participant loans are plan investments and must be managed with the same prudence and oversight required for any plan investment. The risk is heighted by several factors: the increased focus on 401k plans as a source of litigation; an alarming rate of loan defaults, as reflected in academic and industry studies; and a misguided belief that disclosure provides adequate protection. This 6-page paper explores these issues.
Source: Loaneraser.com, April 2019
Tussey v. ABB Closes With $55 Million Settlement; Complex Case Changed Views of Fees, Fiduciary Duty
Tussey v. ABB, after winding through earlier settlement awards to the plaintiffs, two appellate hearings in the 8th Circuit, and double rejections by the U.S. Supreme Court, ultimately will be remembered both as a case about plan sponsors' fiduciary duties and one that defined how to quantify participant losses from related breaches. As a result, the retirement plan industry has moved in a unified way to press for reductions in service provider fees, opt for lower-cost share classes, and insist upon greater transparency for recordkeeping and asset management costs.
Source: Blr.com, April 2019
Changes in the enforcement focus of the Internal Revenue Service and the U.S. Department of Labor place payroll operations high on the list of fiduciary functions that employers must monitor with great care. The financial penalties and reputational harm caused by payroll failures can be costly and damaging to enterprises that sponsor 401k and 403b retirement plans.
Source: Rolandcriss.com, April 2019
The White House issued an executive order on the evolving topic of proxy voting and environmental, social and governance investing programs being put into practice by retirement plans subject to ERISA. One ERISA expert says fiduciaries already evaluating ESG risks and those being active in proxy voting will continue parsing whatever ad hoc disclosures are volunteered by companies.
Source: Planadviser.com, April 2019
After briefly reviewing current "pay to play" litigation, the article takes up the question, "do these arrangements pose an ERISA prudence challenge for sponsor fiduciaries?" Bottom line: as with other 401k fee litigation, the key question is likely to be, is the plan overpaying for these services? And the answer to that question is likely to turn on the issue of fair market value and the cost of alternative solutions.
Source: Octoberthree.com, April 2019
Given the shift in participant mindset and demographics, it's important for retirement plan committees to re-think the traditional approach to designing plan investment menus. Article discusses the strategic outcomes fiduciaries should be focused on when designing a fund lineup for their plan.
Source: Greenspringadvisors.com, March 2019
For all their convenience, for all their popularity, the increased reliance on TDFs does not necessarily shield the 401k plan sponsor. The author spoke to corporate retirement plan advisers from across the country. They identified five ways TDFs expose plan sponsors to fiduciary liability.
Source: Fiduciarynews.com, March 2019
Plan fiduciaries, regardless of their title, are expected to perform their duties solely in the best interests of plan participants and their beneficiaries. In addition, plan fiduciaries are expected to act prudently. Failing to do so, and failing to comply with Department of Labor fiduciary responsibilities, can lead to a fiduciary liability lawsuit. This article provides actionable suggestions on avoiding fiduciary liability in 2019.
Source: Hallbenefitslaw.com, March 2019
An interview with Roger Levy, LLM, AIFA(R), CEO of Cambridge Fiduciary Services, on why he feels plan sponsors are less aware of their fiduciary liability than they should be, what he sees as the greatest threat to 401k fiduciaries, and other topics.
Source: Fiduciarynews.com, March 2019
Fulfilling fiduciary duties is an outcome of successfully integrating processes and methodologies that require different skillsets. All major decisions should be made with only the economic interests of the plan participants in mind. Failure to do so increases the likelihood of a breach of fiduciary duty. Here is a Plan's Sponsor's road-map to successfully fulfill fiduciary duties.
Source: 401khelpcenter.com, March 2019
Target-date funds are the fastest growing segment on the 401k investment menu. In the more than ten years since they've become a QDIO staple in 401k plans, target-date funds have certainly changed the retirement prospects for employees. How have these investment vehicles changed the roles, responsibilities, and even the fiduciary liability of the plan sponsor?
Source: Fiduciarynews.com, March 2019
Employee benefit plans typically gather, use, and maintain confidential data about plan participants. Employers, plan sponsors, and fiduciaries must use cybersecurity best practices to protect this information. This article exploreS some cybersecurity techniques applicable to employee benefit plans.
Source: Hallbenefitslaw.com, March 2019
Running and maintaining a plan can be complicated and fiduciary rules are part of the reason. A recent blog entry offers some suggestions regarding how to reduce the risk of making fiduciary errors in operating a plan. "Operational errors can arouse the same severe consequences as an investment program that's infested with excessive investment-related fees," warns the Roland Criss law firm adding for good measure that the Department of Labor "consistently reminds the HR community that violations of an ERISA plan's operational rules can expose enterprise leaders to personal economic damages." To reduce the risk of running afoul of such errors, Roland Criss suggests a number of actions.
Source: Asppa.org, March 2019
All too many 401k and pension plan sponsors and committee members still mistakenly believe that their recordkeeper is responsible for all plan compliance. Many services agreement makes the plan sponsor responsible for plan administration even though they are not actually taking care of most compliance matters themselves. Some new practices can help insure that the plan is run correctly and avoid potentially expensive penalties. Here are some steps to include in an action plan for coordinating with your recordkeeper.
Source: Cohenbuckmann.com, February 2019
The DOL intends to treat failure to locate missing plan participants as a breach of fiduciary duty under ERISA. Non-compliant plans may face significant penalties. This is somewhat of a reversal of a former DOL attitude that plans simply wait for participants to locate them.
Source: Hallbenefitslaw.com, February 2019
CAPTRUST's Drew McCorkle provides an update on topics such as fiduciary process controls, staff creating fiduciary liability, pension lawsuits on benefit calculations, and benefit interference claims.
Source: Captrust.com, February 2019
This article discusses a novel approach for compliance with the fiduciary standard for the selection of investments for 401k plans. All the more interesting, the approach was part of an opinion of the U.S. First Circuit Court of Appeals.
Source: 401kspecialistmag.com, February 2019
In recent years, there has been an increase in considering environmental, social, and governance criteria when it comes to investing. However, not all investors agree that ESG factors should be considered when identifying prudent investments. The Department of Labor recently put out a bulletin that clarified how ESG criteria can be used by plan fiduciaries in making investments.
Source: Bsllp.com, February 2019
One of the most important things a company can do to properly equip its retirement plan committee members is to provide comprehensive fiduciary training. It's an important step to minimize fiduciary risk through education and governance. Furthermore, the DOL views fiduciary training as a critical element of prudent oversight and is increasingly looking for evidence that fiduciary training has been provided during plan audits. Unfortunately, formal fiduciary training is still not very common within the industry.
Source: Greenspringadvisors.com, January 2019
As someone responsible for 401k compliance and administration at your company -- whether you're signing Form 5500 each year or just handling part of the process -- there are some very big legal responsibilities you need to be aware of. This guide walks you through everything you need to know about being a 401k fiduciary: what it means, what your legal responsibilities are, and steps you can take can to offload some of that liability and make your plan's compliance as simple and easy as possible.
Source: Forusall.com, January 2019
On January 18, the Nevada Securities Division released its long-awaited proposed draft regulation. Under the proposed regulation, a broker-dealer and sales representative are presumed to owe a fiduciary duty to the client.
Source: Fiduciarygovernanceblog.com, January 2019
A well-organized and effective retirement plan committee is the cornerstone of successful fiduciary decision-making and organizational risk management for plans of any size. However, great committees do not happen by accident, they are the product of a "best practices" approach to design and implementation. Listed here are eight simple steps any company can implement to make its committee more effective.
Source: Greenspringadvisors.com, January 2019
This is a summary of the deposit deadlines applicable to all 401k plan contributions, including how to correct late contributions. If you're a 401k fiduciary, you can use this information to understand your plan's contribution deadlines and what you need to do in case you miss one.
Source: Employeefiduciary.com, January 2019
A new world of fiduciary is upon us. What does this mean for 401k plan sponsors and the financial professionals that serve them? How should this new fiduciary atmosphere change their focus? In many ways, 401k plan sponsors might be surprised to discover the path has never been clearer In fact, the journey can be described in these five easy steps.
Source: Fiduciarynews.com, January 2019
The problem with most resolutions is that people quickly give up on them. For plan sponsors, they should have New Year's resolutions to improve their plan because they are fiduciaries by being responsible for the retirement plan assets over their employees. This article is about New Year's resolutions that plan sponsors should make and keep alleviating some of the potential liability they face as plan fiduciaries.
Source: Jdsupra.com, December 2018
A series of recent settlements in ERISA lawsuits illustrates to defined contribution sponsors why an ounce of prevention is worth a pound of cure. These settlements cover financial institutions that have filled their 401k plans with proprietary investments, provoking allegations of self-dealing that violate their fiduciary responsibilities under ERISA.
Source: Pionline.com, December 2018
401k and 403b plan litigation is not going away. If you are a plan fiduciary looking to avoid (or win) future lawsuits over fees and investments, there are lessons to be learned from recent decisions and settlements about the best ways to protect yourself in 2019. Here are some important takeaways from recent litigation activity.
Source: Cohenbuckmann.com, December 2018
401k lawsuits are on the rise. However, the legal responsibilities associated with 401k lawsuits are not always crystal clear. Plan fiduciaries who manage and administer 401k and 403b plans struggle with knowing how to perform. There are many grey areas, and so questions persist about fiduciary duties and 401k lawsuits. A 2018 paper from the Center for Retirement Research at Boston College explores the reasons behind these lawsuits, as well as their implications for plan sponsors and the retirement industry.
Source: 401ktv.com, December 2018
Employers have a fiduciary responsibility to ensure the fees paid by their 401k plan participants are "reasonable" and not subject to unnecessarily excessive fees. To do that job, employers must benchmark their 401k fees - basically, compare them to industry averages and/or fee charged by competing 401k providers. Sounds straightforward, but this information is hard to find and often harder to compare on an apples-to apples basis.
Source: Employeefiduciary.com, November 2018
DOL Guidance Addresses Fiduciary Status and Fees Under Program Facilitating Portability of Automatic Rollovers
The program provider asked the DOL for two forms of guidance: first, an advisory opinion clarifying the fiduciary status of the parties involved; and second, a prohibited transaction exemption that would allow the provider to receive a fee for transferring a default IRA's assets into the plan of the IRA owner's current employer without the owner's affirmative consent.
Source: Thomsonreuters.com, November 2018
While insurers have not reacted in a unified way, the claim environment has become much more active and severe during the past 24- 36 months, highlighted by well-publicized excessive fee litigation under ERISA. This 10-page fiduciary liability claim trends report discusses, among other items, the many excessive fee cases brought against universities, why proprietary funds are more challenging risks, and recent results from a Boston College study examining the causes and consequences of 401k lawsuits.
Source: Lockton.com, November 2018
Pentegra released this report -- based on the results of a survey of retirement plan advisors -- to determine what their attitudes are toward ERISA 3(16) fiduciary outsourcing.
Source: Issuu.com, November 2018
There is not a legal requirement that committee members receive fiduciary training. Instead, it's a best practice and good risk management. But, what should the fiduciary education cover? Based on an analysis of court decisions on fiduciary responsibility, Fred Reish worries that fiduciaries may not be adequately educated about their basic responsibilities and particularly their administrative oversight duties.
Source: 401kspecialistmag.com, November 2018
As a plan sponsor, you are required to understand all of the fees that are associated your organization's retirement plan benefit program. This is a challenge because plan fee structures are often opaque, complicated, and downright misleading. The most effective way to meet your fiduciary requirement is a Request for Proposals process, typically run every three-to-five years. Why? The 401k and 403b markets are extremely competitive. They are constantly evolving and changing.
Source: Fiduciaryplangovernance.com, November 2018
401k Plan Sponsors may consider retaining outside help to assist the organization in meeting various fiduciary responsibilities. To prepare for any meaningful conversation of fiduciary responsibilities, there are a few terms one should be familiar with and have a basic working knowledge of - §3(16), §3(21) and §3(38).
Source: 5500audit.com, November 2018
Fidelity recently debuted two "no fee" mutual funds, a domestic and an international index fund. This concept raises significant fiduciary questions. Beyond the fact they have no investment performance history, the very concept of the business model has no history. No mutual fund has ever been offered that has been fully subsidized by the management company.
Source: Fiduciarynews.com, October 2018