COLLECTED WISDOM™ on Fiduciary Responsibility and Liability Issues
This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.
If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.
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 Related News and Intelligence, and DOL's Final Fiduciary Rule and Best Interests Contract Requirement.
In seeking clarity about the "type" of 401k professional it has retained, plan sponsors often find the answers they are given to be incoherent with a slant in favor of the 401k industry instead of plan participants. The residual fuzziness plan sponsors are left feeling about this topic is a source of significant irritation to them. This comprehensive article attempts to peel back the fiduciary layers and unscramble the fiduciary fuzziness.
The failure to fully execute the fiduciary duties ERISA imposes upon 401k plan employers and administrators can lead to significant liability exposure. This article will help plan sponsors navigate the minefield of fiduciary liability including reviewing the litigation risk and suggesting some best practices.
Because of a number of factor including the recent class action lawsuits and a new focus by the Department of Labor and Internal Revenue Service on a number of issues including fees, plan sponsors need to be more vigilant. They also should take proactive steps to ensure that all plan fiduciaries have a good understanding of their obligations in overseeing the company's retirement plans. Here is a general overview of fiduciary duties and responsibilities.
The DOL has prepared these best practices for use by recordkeepers and other service providers responsible for retirement plan-related IT systems and data, and for plan fiduciaries making prudent decisions on the service providers they should hire.
Source: Dol.gov, April 2021
Participant Directed Investments Through Brokerage Windows: The Last Frontier or a Trap for the Unwary?
What should fiduciaries of participant-directed plans consider in deciding whether to allow participants to direct their investments using arrangements loosely referred to as "brokerage windows"? The realm of ERISA plan investments through these arrangements remains largely uncharted territory. Fiduciaries operate under the broad understanding that ERISA Section 404(a) fiduciary duties of prudence and loyalty apply, but with little guidance on how.
Source: Wagnerlawgroup.com, April 2021
Does the industry have a clear definition of what the DOL would consider investment education (not advice) in a 401k plan so that a financial advisor would not have to follow the requirements of Prohibited Transaction Exemption 2020-02?
Source: Napa-net.org, April 2021
The recent increase in litigation over retirement plans and, specifically, the fees those plans are being charged for administration and management, has many companies concerned about what they need to do to protect the plans they manage. Two recent federal district court rulings illustrate the necessity for plan sponsors to have a prudent decision-making process in place to successfully defend against excessive fee litigation.
Source: Hallbenefitslaw.com, April 2021
Given that there are so many considerations to weigh when overseeing a retirement plan, it is important for plan sponsors to have a checklist for their committees -- whether the sponsor has a single retirement plan committee or dual investment and administrative committees -- to cover in quarterly meetings. Experts discuss what main facets of a retirement plan that a committee should cover in its quarterly meetings.
Source: Plansponsor.com, March 2021
Many fiduciaries responsible for selecting their 401k plan's target-date funds don't understand how these funds work. The risk of staying ignorant is increasing. Lawsuits challenging target-date fund selection are on the rise, and plan fiduciaries need to be able to defend their choices in response to these suits. New products, such as target-date funds that provide lifetime income options or make private equity investments are becoming available. For all of these reasons, if target-date funds are included in a plan's investment menu, fiduciaries need to develop a prudent process for evaluating the funds in partnership with their investment professionals.
Source: Cohenbuckmann.com, March 2021
Overwhelmed by a lengthy to-do list, including the perpetual need to meet ERISA regulatory obligations, plan fiduciaries often lose sight of the foundation for sponsoring a retirement plan: its purpose. Enacting a Plan Sponsor Philosophy is an effective way for committee members to remind themselves of this basic goal. Unlike a Committee Charter, which sets the lines of authority, or an Investment Policy Statement, which outlines acceptable actions, a philosophy defines a retirement plan’s purpose, making it a useful reference tool for committees during the decision-making process.
Source: Porteval.com, March 2021
Fee benchmarking can be a great tool for plan sponsors to ensure that their plan fees are fair and reasonable and also help to fulfill a fiduciary responsibility. Since each fee benchmarking platform has a unique process for aggregating and reporting data, plan sponsors should consider how various data sources, pools of data or report customizations may impact the accuracy and reliability of the report.
Source: Rpgconsultants.com, February 2021
The DOL's new missing participant guidance confirms that the DOL expects to see written policies and procedures regarding these terminated vested participants and puts in writing many, if not all, of the various suggestions DOL investigators have made for locating these participants during investigations. In certain respects, the documents also offer welcome transparency, in particular regarding the investigative processes and case-closing practices that investigators should be following when conducting these investigations.
Source: Thompsonhine.com, February 2021
Fiduciaries are required by ERISA to monitor the services providers to their plan. This includes monitoring any conflicts of interest. This retirement plan vendor conflict resource will help you identify, monitor, and avoid any conflicts with your plan's service providers, plus a worksheet to assist in asking the right questions about potential conflicts.
Source: Multnomahgroup.com, February 2021
Meeting minutes capture the discussion and decisions of the investment committee. Several sets of meeting minutes help weave together the story of the actions the committee has taken related to their retirement plan. All employer-sponsored retirement plans are different. As the industry evolves, plans adopt different strategies at various times. A committee may take several years to execute plan changes. Meeting minutes provide the roadmap on what the committee was doing and how the committee reached its desired result.
Source: Multnomahgroup.com, February 2021
The DOL has simplified the delivery of retirement plan information to participants through its new electronic disclosure rule. Although the E-Delivery Rule promises to expand the use of electronic delivery, retirement plans still retain a fiduciary duty to protect participants' personal information from cybertheft. Thus, retirement plans taking advantage of the new rule may face increased exposure to ERISA fiduciary breach claims alleging inadequate cybersecurity measures. This article discusses the DOL's E-Delivery Rule and the fiduciary considerations applicable to plans that rely on the new rule.
Source: Asppa.org, February 2021
Does the Investment Duties Regulation Change How Fiduciaries Are Expected to Make Investment Decisions
The more things change the more they stay the same. Or do they? This question should be on every employee benefit plan fiduciary's mind after January 12, 2021, when an amended DOL regulation went into effect changing the standards under which fiduciaries are expected to make investment decisions for ERISA employee benefit plans.
Source: Wagnerlawgroup.com, January 2021
Plaintiffs' class action lawyers in fiduciary breach lawsuits, the DOL in ERISA plan audits, courts, and insurers have focused increased attention on how well ERISA plan fiduciaries follow procedural due process. Actions (or inactions) of committees and individual fiduciaries are scrutinized and judged in increasing detail, causing fiduciaries to wonder if they are up to date on all best practices for plan governance. This article is about best practices for ERISA plan fiduciary governance.
Source: Winston.com, January 2021
Often fiduciary duties are magnified and called into question when the country is plunged into an economic crisis and retirement plans suffer significant losses. Most notably, we saw an increase in the number of ERISA class action lawsuits in the wake of the Great Recession of 2008. This article analyzes the ERISA litigation trends that emerged after the Great Recession, the lessons learned, and what we may expect in the wake of the economic impacts resulting from the novel coronavirus pandemic, COVID-19.
Source: Dechert.com, January 2021
2021 is a good time for retirement plan sponsors to consider hiring an advisor who will accept delegation to serve as their 401k plan's fiduciary investment manager. Often known as a 3(38) advisor, these professionals bring a high level of investment expertise and fiduciary prudence to the selection and monitoring of 401k plan investments. They also remove that responsibility -- and the potential liability that accompanies it -- from the plan sponsor.
Source: Alliant401k.com, January 2021
TRI-AD seeks to make it fast, simple, and easy for plan fiduciaries to keep their retirement plans in compliance with the Internal Revenue Service, Department of Labor, and ERISA regulations. They have created this useful calendar to help you stay in front of such administrative deadlines and submission complexities.
Source: Tri-ad.com, January 2021
This is the time of year when we see lots of articles on hot plan trends for 2021 and what benefits innovations plan sponsors are adopting. But the beginning of the new year is also a good time for fiduciaries to review basic plan policies and operations to see how they can be improved. The better these are, the greater the chances your plan will survive an audit or prevail in a fiduciary breach lawsuit. Here are some places to start.
Source: Cohenbuckmann.com, December 2020
This 8-page white paper offers insights into the principles that underlie conduct for 3(16) Plan Administrators. It also draws a line between third parties who are qualified to provide ERISA's comprehensive fiduciary 3(16) role and those that only pretend to do so.
Source: Rolandcriss.com, November 2020
Offering a 401k plan can be challenging and meeting your important fiduciary responsibilities can seem overwhelming. Administering a plan and managing its assets require certain actions and involve specific fiduciary responsibilities. This 8-page checklist will help guide you through the process.
Source: Employeefiduciary.com, November 2020
Plan sponsor fiduciaries who take a do-it-yourself approach to plan investments face huge potential exposure for underperforming investments and excessive plan fees. If you are a plan sponsor fiduciary who is losing sleep over all of this, it may be time to consider outsourcing your investment responsibilities to an investment manager or outsourced chief investment officer.
Source: Cohenbuckmann.com, November 2020
The Final Rule requires that fiduciaries evaluate investment opportunities based upon pecuniary factors. However, if fiduciaries are unable to distinguish investments based on pecuniary factors, the Final Rule permits fiduciaries to consider non-pecuniary factors as a tie-breaker provided that they comply with the Final Rule's documentation requirement. Like the Proposed Rule, the Final Rule includes restrictive conditions for investments used as a plan's qualified default investment alternative. This article describes the Final Rule's key features, including notable differences from the Proposed Rule.
Source: Groom.com, November 2020
Retirement plan governance is the system through which key decisions are made about strategy and operations, including plan design, administration, and investment choices. Typically, at the core of plan governance is an official plan governance committee. Although the DOL and IRS do not require a plan to have a plan governance committee, it is considered a best practice to have one.
Source: Orba.com, November 2020
It's an often-overlooked aspect of qualified retirement plan operations, the need for a prudent and comprehensive governance process and identifying the person responsible for creating and "quarterbacking" these efforts. With proper fiduciary governance as a premier regulatory and litigation issue in the defined contribution plan space, the topic could not be timelier.
Source: 401kspecialistmag.com, November 2020
COVID-19 has presented many challenges, including market volatility and business disruptions, which have placed added pressures on plan fiduciaries to comply with their ongoing obligations to prudently administer plans and plan investments. The steps outlined here will help employers and ERISA fiduciaries demonstrate prudence in plan operation and management and to mitigate their legal risk in response to the COVID-19 environment.
Source: Vanblacklaw.com, October 2020
Are plan sponsors' responsibilities for making sure retirement plan fees are reasonable different when the plan sponsor pays versus when plan participants pay? There is less risk when a plan sponsor pays retirement plan fees, but that doesn't necessarily mean the benchmarking should be different than if participants pay.
Source: Plansponsor.com, October 2020
Plan fiduciaries are now faced with the detailed compliance requirements of ERISA and cybersecurity laws including data breach matters. So, what can fiduciaries do to minimize their cybersecurity liability?
Source: Foley.com, October 2020
While outsourced chief investment officers have historically been tapped by defined benefit plan sponsors and endowments, there is a growing trend of DC plan sponsors turning to OCIO managers. New research from PGIM research found the top reasons that plan sponsors are using an OCIO manager.
Source: 401kspecialistmag.com, October 2020
There's a common characteristic that links exemplary fiduciaries; it's their non-negotiable approach to moral discernment. They demonstrate a greater neurological capacity for binding procedural justice (moral discernment) with procedural prudence (prudent decision-making). Unfortunately, the exemplary fiduciary is becoming a rarity. There are three reasons why.
Source: 401kspecialistmag.com, October 2020
Plan sponsors can blame the problems of their plans on others, but ultimately they bear the brunt of liability as plan fiduciaries. A plan sponsor must be aware of all their fiduciary duties or at least, hiring several plan providers that do. Liability is avoided by understanding the responsibility as a retirement plan sponsor. Like with the sign on Harry Truman's desk, "The Buck Stops Here" with retirement plan sponsors.
Source: Jdsupra.com, September 2020
In this paper, the authors challenge five common misconceptions that have led to the increased prevalence of passive investments in defined contribution plans. To help fiduciaries weigh the pros and cons of active management, they perform a reality check on each misconception, referencing fiduciary principles, and market and participant survey data.
Source: Mfs.com, September 2020
The courts have stated that their review of fiduciary decisions is both exacting and deferential. A recent decision from the Court of Appeals for the Seventh Circuit offers help to ERISA benefit professionals who prefer to maximize judicial deference in favor of the fiduciaries.
Source: Beneficiallyyours.com, September 2020
It is hard to imagine that the drafters of ERISA envisioned a day would come when retirement plans would be administered electronically and distribution of paper notices and disclosures to plan participants might become a thing of the past. However, the retirement industry seems to be swiftly moving that direction. This creates a new liability source for the plan and its service providers.
Source: Wagnerlawgroup.com, September 2020
On April 3, 2020, a participant in the Abbott Corporate Benefits Stock Retirement Plan, Heide Bartnett, filed a complaint against her employer and Alight Solutions, the Plan's contract administrator and recordkeeper, for allegedly processing a fraudulent $245,000 distribution from Ms. Bartnett's Plan account to an unknown person that impersonated her. In response and further demonstrating the lack of clarity on who is liable when a plan suffers a data breach, on June 30, Abbott Laboratories and Alight Solutions pointed fingers at each other in dueling motions.
Source: Wagnerlawgroup.com, September 2020
The DOL issued a proposed regulation outlining the duties of an ERISA fiduciary when considering an investment that incorporates environmental, social, and corporate governance factors. Some believe that the DOL will likely move quickly to finalize the regulation before the end of the current administration's first term. The proposed regulation would make five basic changes to the current regulation.
Source: Verrill-law.com, August 2020
A recent spate of lawsuits against large employers' 401k retirement plans has refocused attention on the need for plan administrators to ensure that they are honoring their fiduciary duties and prudently managing their Plans. Plan administrators should take several steps now to ensure that they have good defenses when lawsuits are filed.
Source: Foley.com, August 2020
Retirement plan fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include: acting solely in the interest of plan participants and with the exclusive purpose of providing benefits to them; carrying out their duties prudently; following the plan documents; diversifying plan investments; and paying only reasonable plan expenses. This article details pitfalls that plan fiduciaries are usually unaware of, which could expose them to potential fiduciary liability.
Source: Jdsupra.com, August 2020
Employers that are fiduciaries of participant-directed individual account plans subject to ERISA should be pleased with the position taken by the DOL in an information letter dated June 3, 2020, addressing the use of private equity investments in designated investment alternatives offered in Plans. The DOL states that subject to the standards and considerations outlined in the letter, a plan fiduciary would not violate its duties under sections 403 and 404 of ERISA solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative in a plan.
Source: Workforcebulletin.com, July 2020
Retirement plan fiduciaries are undoubtedly concerned about the effect of all the changes brought about by the pandemic and its effect on society and the stock market. Conducting a comprehensive review of a plan's investments, fees, and performance is in order to avoid litigation. Here are some considerations for fiduciaries navigating their duties in the wake of COVID-19.
Source: Hallbenefitslaw.com, July 2020
The proposed rule makes it clear that fiduciaries must select those investments based solely on financial considerations that impact the economic value of the investments. In other words, plan fiduciaries must not sacrifice performance or expose the plan participants and beneficiaries to additional risk by including investment options that primarily serve the non-financial interests of the plan fiduciaries.
Source: Icemiller.com, July 2020
ERISA Section 404 sets forth ERISA's general fiduciary duty provisions. Knowing when these stringent duties apply is critical. The fiduciary duties established under ERISA are routinely acknowledged as the "highest known to the law" and the consequences of noncompliance can be significant: ERISA Section 409 imposes personal liability on fiduciaries, to make good on retirement plan losses resulting from their actions or inactions, in fulfilling their duties under ERISA Section 404. This 23-page article goes into great detail on various fiduciary duty provisions and knowing when these stringent duties apply.
Source: Wagnerlawgroup.com, July 2020
The DOL released a proposed rule that will amend existing guidance governing a fiduciary's investment duties under ERISA. The proposed rule clarifies that plan fiduciaries must base their investment decisions solely on pecuniary factors: those that have a material effect on an investment's risk and return based on appropriate time horizons consistent with the plan's investment objectives and funding policy. In other words, plan fiduciaries must not sacrifice performance or expose plan participants and beneficiaries to increased financial risk to serve a non-pecuniary interest.
Source: Thompsonhine.com, July 2020
The DOL issued a proposed regulation amending the fiduciary regulations governing investment duties under ERISA. This proposed regulation guides an ERISA fiduciary considering an investment or investment strategy based on "non-pecuniary" factors such as environmental, social or corporate governance, or sustainability factors. The DOL indicated that its proposal is in response to increasing interest in ESG and sustainability investing and no clear standard for what constitutes an ESG investment.
Source: Beneficiallyyours.com, July 2020
Several key recordkeeping fee decisions are important for prudent plan fiduciaries to analyze carefully. More often than in the past, when plan sponsors benchmark their plan fees, they often use the opportunity to evaluate the way fees are allocated to participants and to make changes to the way fees are paid. Three key recordkeeping fee decisions that go directly to the heart of the question of how fees should be allocated across participants are discussed in this article. First is the decision as to the type of recordkeeping fee structure. Second is the decision around using a lowest-cost share class strategy for the investment menu versus a revenue-sharing model. Last is the decision of how to apply revenue sharing when there is an active decision to use that model or when it is unavoidable.
Source: Porteval.com, June 2020
This paper explains the doctrine commonly referred to as the fiduciary exception to the attorney-client privilege. It is important for plan sponsors, fiduciaries, and their legal advisors to understand the rules regarding when the fiduciary exception doctrine can result in communications between a plan fiduciary and an attorney not to be privileged and become susceptible to being produced in litigation. This paper also explains how the fiduciary exception doctrine has been used to try to obtain communications ordinarily protected by the attorney work product doctrine. The principles outlined in this paper can help employee benefits counsel and their clients better understand how best to protect the privacy of their communications and how to anticipate when these communications may be open to examination by plan participants.
Source: Amazonaws.com, June 2020
This article reviews two recent cases that considered claims by participants in 401k participant-directed investment plans that plan fiduciaries failed to prudently monitor investments in what fiduciaries claimed were brokerage windows or "similar plan arrangements." The article starts with a summary of what we know and what we don’t know about the legal status of brokerage windows and similar plan arrangements.
Source: Octoberthree.com, June 2020
While the guidance does not establish any new fiduciary rules or exemptions, it is nonetheless quite helpful in providing factors to be considered by fiduciaries in determining whether investment vehicles with private equity components belong in their plan investment menu. The Information Letter considers facts relevant to private equity investments, but the guidance can be applied more broadly to consideration of any alternative investment vehicle with similar characteristics.
Source: Wagnerlawgroup.com, June 2020
The DOL seeks to alleviate ERISA fiduciary liability concerns, first by limiting the use of private equity monies to investment components within larger, heavily diversified funds and, second, by focusing on the prudence of the private equity investment selection process itself. By following these precepts, the DOL believes that fiduciaries "may offer an asset allocation fund with a private equity component...in a manner consistent with the requirements of Title I of ERISA."
Source: Compliancedashboard.net, June 2020
DOL Information Letter Outlines Fiduciary Considerations for Including Private Equity in DC Plan Investments
The Letter emphasizes that selection and monitoring of an investment option with private equity are subject to the same fiduciary considerations as other investments (including the duties to be prudent and loyal, and the duty to avoid prohibited transactions). At a high level, this includes evaluating whether the potential upside from the investment justifies the added risk, fees, complexity, and valuation and liquidity issues. The Letter lists specific considerations.
Source: Erisapracticecenter.com, June 2020
ERISA fiduciaries may want to identify steps they should be taking and decisions they should be considering to adjust their process in the face of the coronavirus pandemic. This article identifies six such points that could be appropriate for consideration by retirement plan fiduciaries, such as fiduciary committees, as the pandemic and related economic fallout continue to evolve.
Source: Morganlewis.com, May 2020
Almost every employer that sponsors a retirement plan should be concerned about potential liability for a type of exposure known as excessive fee claims. Historically filed against only the largest organizations, an increasing number of smaller retirement plans have faced excessive fee litigation over the past couple of years. With this surge in litigation, it's important that all fiduciaries, regardless of plan size, understand the history and recent trends relating to excessive fee claims, the plan features that may make it a target of litigation, and steps fiduciaries can take that may reduce exposure to excessive fee claims.
Source: Chubb.com, May 2020
Abbott, as the plan sponsor, is a fiduciary and was responsible for supervising Alight's procedures for safeguarding plan assets, yet the complaint provides no information about what Abbot did or did not do to monitor Alight. Abbott may also have breached its duties of loyalty and prudence by its failure to hire a vendor with adequate internal procedures. In that event, Abbott and its fiduciaries would also be required to restore the loss.
Source: Cohenbuckmann.com, April 2020
A recently-filed lawsuit describes in specific detail the efforts cybercriminals often take to pilfer assets from retirement accounts. As a complaint, the filing provides only the plaintiff's version of what happened, and we have not yet heard from the defendants. But the complaint is particularly interesting in its description of how the theft occurred and may point to some useful approaches to try to reduce future fraud.
Source: Groom.com, April 2020
The District of Massachusetts issued a decision finding that Fidelity breached its fiduciary duties to its 401k Plan by failing to monitor investments and administrative expenses. Although the decision involved unique facts relating to the implementation of a settlement of a prior case brought against Fidelity, the court's 67-page opinion addresses several significant legal issues. These issues include a plan fiduciary's obligations to self-directed brokerage accounts and the consideration of collective investment trusts and separate accounts as alternatives to mutual funds.
Source: Groom.com, April 2020
COVID-19 may have accelerated a reckoning for fiduciaries who have not fulfilled their responsibilities for target-date fund selection. Those who simply selected their vendor's funds without investigation and financial firms that selected their proprietary funds for their plans, especially funds without good track records, are probably most at risk. However, fiduciaries with exposure can begin to reduce that exposure by reviewing their selections and implementing a prudent review process. Here are some questions frequently asked about target-date fund selection.
Source: Cohenbuckmann.com, April 2020
With the business disruptions and market turbulence being wrought by COVID-19, many employers sponsoring qualified retirement plans are facing key decisions about their plans. Some of the most important fiduciary issues an employer may wish to consider in light of COVID-19 and depending on the type of qualified plan it sponsors are reviewed here.
Source: Benefitslawadvisor.com, April 2020
Based on past litigation experience, there are some types of investments that are considerably more likely to be the target of claims under ERISA. This article reviews these claims and also offers some thoughts on preventative measures that plan sponsors and fiduciaries can consider.
Source: Proskauer.com, April 2020
The realities of the Coronavirus pandemic have quickly and dramatically changed the way we work, shop, seek health care, and interact with each other. The employer sponsors of 401k plans and any employer-based fiduciary investment committees should consider taking steps now in response to these developments.
Source: Dickinson-wright.com, March 2020
Training new retirement plan committee members, as well as providing ongoing training throughout the year for all members, is critical, industry experts say. "Because their responsibilities are so enormous, we need to do a better job of training these fiduciaries to make better decisions," says Joshua Itzoe, a partner and managing director with Greenspring Advisors. This article reviews some best practices.
Source: Plansponsor.com, January 2020
For many plan sponsors, designating an ERISA 3(38) investment manager to manage, select, and monitor the retirement plan's investments can be beneficial. It allows the plan sponsor to have more time and attention to focus on other aspects of the organization along with managing tasks that are otherwise difficult to outsource. There are many benefits if you decide to hire a 3(38) fiduciary, but it's important to understand the advantages and disadvantages of their role and the questions you should ask when vetting an investment advisor/manager to take on the role for your retirement plan.
Source: Planpilot.com, January 2020
The U.S. District Court for the Western District of Pennsylvania in Scalia v. WPN Corporation wrote regarding the duty to monitor investment fiduciaries. Given the potential risk related to a breach this fiduciary duty, the WPN opinion is likely to be an important one for Appointing Fiduciaries. In its opinion, the WPN court provided the guidance for assessing the extent to which an Appointing Fiduciary has a duty to monitor and, if so, for determining whether the Appointing Fiduciary has fulfilled that duty.
Source: Financialservicesemploymentlaw.com, December 2019
A recently released case highlights the protection afforded by a retirement plan committee that takes its role seriously. In Scalia v. WPN Corp., a Pennsylvania federal court ruled that the U.S. Department of Labor was wrong in its insistence that retirement committee members were liable under ERISA for failing to monitor the committee's investment manager.
Source: Carltonfields.com, November 2019
The trend of commercial database breaches involving the disclosure of personally identifiable information does not appear to be slowing down. Recent large scale PII breaches of other companies can negatively impact your retirement plan and participants. Cyber criminals are becoming more sophisticated and with the glut of PII available to them, in combination with other techniques such as phishing and malware, retirement accounts are being put at risk of fraudulent access and distribution of funds. As a retirement plan sponsor and fiduciary, there are steps you should take to mitigate the risk of fraud from occurring within your plan.
Source: Newportgroup.com, November 2019
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
Surveys still find that, many plan sponsor representatives who oversee their companies' 401k or other DC plans don't realize that they are fiduciaries under ERISA. And some believe they can offload all of their fiduciary responsibilities for investments to a third party. Plan sponsors who harbor misperceptions like these or who are unaware of their fiduciary status risk violating ERISA's fiduciary standards, harming participants and exposing themselves and their firms to liability. A sound understanding of fiduciary status, responsibilities, liabilities and protections can help ensure that plans are well administered and continue to evolve for the best interests of participants while protecting individual plan fiduciaries and their organizations.
Source: Jpmorgan.com, October 2019
Given the potential dollar amounts at stake, plan fiduciaries should monitor evolving cybersecurity threats and industry standards for dealing with them and take steps to avoid potential attacks on their own plans. This 4-page article evaluates the current legal landscape and highlights some best practices for plan fiduciaries to reduce the cybersecurity risks to their plans.
Source: Eversheds-sutherland.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
If the board of directors adopts a 401k plan, the plan document does not name the company plan sponsor as a named fiduciary but instead names, for example, a benefits committee (comprising subject matter expert employees), and the board exercises no discretion regarding the membership of the committee, the administration of the plan or its investments, then the board has best positioned itself to argue that it is not a plan fiduciary subject to a claim of a breach of fiduciary duties. Not only that, but it has prudently set into motion the best governance practices for the plan.
Source: Pillsburylaw.com, September 2019
Fiduciaries owe a duty of loyalty to plan participants and must discharge their duties solely in the interest of plan participants and beneficiaries. Ignoring online threats could potentially violate this duty. This article reviews some proactive steps plan fiduciaries can take to protect participant data and account balances.
Source: Shrm.org, August 2019
Periodic training updates for retirement plan committee members acting in a fiduciary capacity is a prudent approach ensuring that they maintain the current knowledge essential to carry out their duties. More fundamental is ensuring that new committee members get a strong grounding in plan operations and their responsibilities promptly on being appointed to a plan committee, if not before.
Source: Orba.com, August 2019
A strong governance process benefits the sponsor, the participants, and meets many of the items on the fiduciary checklist. It lowers the risk of potential liabilities that come with a breach of fiduciary responsibility, which could lead to penalties and fines being imposed, as well as expensive and lengthy lawsuits. It reduces the risk potential that a plan is disqualified by the DOL or IRS and lowers potential operating expenses. This article reviews what steps to take to develop an effective plan governance procedure.
Source: Planpilot.com, August 2019
There is a special service provider you can hire to take over many of the legal responsibilities in running a 401k plan, called a 3(16) administrator after a provision in ERISA. More plans are considering hiring 3(16) administrators, but like all methods of outsourcing fiduciary responsibility, there are pros and cons to consider before signing on the dotted line.
Source: 401ktv.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
The overall duty of a fiduciary is to manage retirement plan investments and administer these investments prudently. This may sound simple, however, there is a lot of responsibility for these decisions, and it can become heavily burdensome. In addition, the main difference between 3(21) versus 3(38) is that a 3(21) fiduciary is an investment adviser for the organization without discretionary authority. A 3(38) fiduciary, however, is an investment manager and will make actual decisions about what to include in the plan menu as well as implementing it.
Source: Planpilot.com, July 2019
The various duties owed by private equity fund managers to their clients are often referred to collectively as "fiduciary duty," as if that were a term that has a clear and consistent meaning. In reality, fiduciary duty means different things in different jurisdictions and in different contexts and, as a blanket statement of legal obligations, implies little more than a special relationship that has trust and confidence at its heart. Although fiduciaries have certain duties imposed on them by law, and may face tougher consequences if they breach those duties, the precise nature and extent of their duties can vary considerably.
Source: Debevoise.com, June 2019
This 19-page Legal Update reviews recent trends, considerations under the Employee Retirement Income Security Act of 1974, as amended, and potential legal risks arising out of the investment of defined contribution plans in alternative asset classes.
Source: Mayerbrown.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
As a retirement plan sponsor, one of the biggest steps toward ensuring regulatory compliance includes establishing a committee to manage the plan. Setting forth clear objectives and direction for the composition and function of your retirement plan committee can be the key to its success. In this article, learn about some standard objectives and responsibilities for your committee, with a specific view towards its investment responsibilities.
Source: Planpilot.com, 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
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
Employers and plan sponsors who have not taken the proper steps to mitigate their liability with respect to the provisions of Section 404(a) of ERISA run the potential for drawn out litigation and the financial risk associated with failing to adhere to the "Prudent Person Rule." This requirement may cause you to consider whether you wish to continue to assume the role of a Section 3(21) plan fiduciary or outsource investment oversight to a Section 3(38) Investment Manager.
Source: Planpilot.com, April 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
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
This 10-page paper is intended to provide a summary of ERISA and the role of an independent fiduciary, including when an independent fiduciary must be engaged or should be engaged, the benefits associated with having an independent fiduciary and certain practical considerations.
Source: Ajg.com, February 2019
This 17-page paper examines the potential influence that digital design can have on one's retirement savings decisions. As the use of digital and mobile technologies continues to increase, the paper proposes that plan sponsors and advisors have a responsibility to consider websites and apps that encourage better retirement decision-making, applying the same oversight and diligence that they currently utilize for plan design and investment selection.
Source: Voya.com, January 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
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
Finding missing participants can be frustrating and time-consuming, but employers and plan sponsors have the fiduciary responsibility to provide communication, statements and disclosures to them just as often as active employees. The DOL and IRS has published guidance for locating missing participants.
Source: Watkinsross.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
This 5-page white paper is for plan sponsor representatives who desire to know more about key fiduciary issues: (1) the high standards applicable to a fiduciary; (2) a fiduciary's core responsibilities; (3) the danger of working with a non-fiduciary; and, (4) what they should expect from a strong fiduciary partner.
Source: Qualifiedplanadvisors.com, October 2018
Fiduciary liability insurance is an important, but often overlooked, aspect of a company's risk management plan. This article discusses the use of fiduciary insurance in protecting fiduciaries from liability when governing or providing services for employee benefit plans subject to the Employee Retirement Income Security Act.
Source: Ckrlaw.com, October 2018
One might think that there is a lower level of liability risk for plan fiduciaries where a brokerage window is available, particularly where the window supplements a menu of selected investment options, because it gives plan participants greater choice without any expectation that the fiduciaries are responsible for each investment available through the window. However, there can still be fiduciary obligations related to offering the brokerage window that, if not met, could trigger liability.
Source: Morganlewis.com, August 2018
Plan fiduciaries of 403b plans face some unique challenges and making mistakes can expose these fiduciaries to liability. Following 403b fiduciary best practices can help reduce the risk of lawsuits and avoid ERISA compliance violations.
Source: Bsllp.com, August 2018
The United States District Court for the District of Minnesota has, for a second time, dismissed claims by participants in the Wells Fargo 401k plan. This second decision focused on the issue of the fiduciary duty of loyalty, the court's discussion of which is thorough and interesting both in its specific application to stock drop cases and to fiduciary litigation more generally. In this article we discuss the court's opinion in detail.
Source: Octoberthree.com, August 2018
In Meiners v. Wells Fargo & Company, the U.S. Court of Appeals for the Eighth Circuit clarified the burden plaintiffs must meet to state a claim for breach of fiduciary duty under ERISA based on the inclusion of allegedly underperforming and expensive investment funds. Because plaintiffs often lack detailed information about the process plan fiduciaries followed to make investment choices, pleading a plausible claim that those fiduciaries have acted imprudently can pose a significant challenge.
Source: Kslaw.com, August 2018
When employees allege the employer or plan sponsor has not acted in the sole interest of the participants or followed the plan requirements, the plan sponsor may be liable for losses and damages which result. However, by following the best practices for defined contribution plan fiduciaries, plan sponsors can avoid litigation and limit potential losses.
Source: Bsllp.com, August 2018
hey can take away the DOL's Fiduciary Rule, but they can't remove the after effects. Remember, the official name wasn't "The Fiduciary Rule." When the DOL unveiled the final version, it was rechristened "The Conflict-of-Interest Rule." The focus wasn't on some legal definition of fiduciary. Instead, the emphasis was on the dangers inherent in advice containing conflicts-of-interest. Here are some examples of self-dealing transactions that, if executed, will likely result in a fiduciary breach.
Source: Fiduciarynews.com, July 2018
When thinking about fiduciary support services and outsourcing, really the important considerations should be about process and time management, more than fiduciary risk transfer.
Source: Planadviser.com, June 2018
While many argue about how many financial professionals can dance on the head of the fiduciary pin, the answer to "Who is a fiduciary?" has always been there. It comes in the form of a written document called a "Limited Power of Attorney." Registered Investment Advisers, at least those with the direct authority to trade client assets, can only do so under this legal agreement. Indeed, it can be argued that fiduciary "advice" cannot be given without the existence of a Limited Power of Attorney. This makes the LPOA a very special instrument.
Source: Fiduciarynews.com, May 2018
Given the high stakes, it is important that plan fiduciaries understand their duties and how best to fulfill them. For employers who have not yet undertaken the task, training of plan fiduciaries should be a top priority for 2018. This article reviews 10 key topics that should be included in an ERISA fiduciary training program.
Source: Thompsoncoburn.com, April 2018
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