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 proposed rule would largely retain the basic framework of the investment duties regulation while reinstating guidance similar to the sub-regulatory framework that existed immediately before the 2020 rules. For example, the proposed rule retains two longstanding principles. First, the duties of prudence and loyalty require ERISA plan fiduciaries to focus on material risk-return factors and not subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of benefits under the plan. Second, the fiduciary act of managing plan assets includes making decisions about voting proxies and exercising shareholder rights. While the framework is the same, the proposed rule would include changes that seem likely to result in greater leeway for fiduciaries to include ESG investments in plans.
Source: Groom.com, October 2021
Plan sponsors face peculiar challenges when securities markets swing wildly. The novel COVID-19 pandemic ushered in a period of severe volatility in the stock and bond markets. Combine that with employees riddled with anxiety about the safekeeping of their retirement plan assets, and the scope of a fiduciary's burden seems unmanageable. On any regular day, the legal duty imposed on the members of investment and benefit plan committees is already formidable. The antidote for such challenging conditions is a precise and disciplined management process built on a foundation of principled standards. This 5-page article discusses ways duty-bound executives can cut their legal risks and sustain peace of mind despite our chaotic times.
Source: Rolandcriss.com, September 2021
Reports are plentiful of employers trapped in legal proceedings for violating their trusted role as the overseer of their employees' retirement plans. Until recently, we only heard rumors of suspected lethargy among the overseers. But the frequency and number of failed leadership allegations among them on social media, in the 24-hour broadcast news cycle, and print media tends to taint the reputations of all employers in the public eye. Wisdom calls for a change in fiduciary behavior.
Source: Rolandcriss.com, September 2021
401k plan recordkeeper consolidation is proceeding at a rapid pace as a response to shrinking profit margins. If your recordkeeper is acquired, passivity is not an option for fiduciaries who are not already familiar with the buyer's business and fee structure. Fiduciaries have a legal responsibility to make sure that their plans have obtained competent services at a reasonable cost, which means that they need to take steps to determine whether staying put or finding a new record keeper is in the interest of plan participants.
Source: Rpaconvergence.com, September 2021
In today's world, most transactions involving retirement plans are conducted electronically, including maintaining and sharing data across multiple platforms. Data and personally identifiable information have become increasingly vulnerable to attack as the information travels across employer and third-party systems. Plan fiduciaries must develop best practices related to cybersecurity. This requires thought and insight and depends on the facts and circumstances. This 12-page paper is an in-depth review of the issue.
Source: Mintz.com, August 2021
Two law firms have issued reminders that plan sponsors are ultimately liable for any plan operational errors, even if they rely heavily on recordkeepers and third-party administrators for day-to-day plan administration. Indemnification clauses in service provider contracts, PEPs, and 3(16) administrators can reduce plan sponsors' fiduciary burden, but none offer complete protection, attorneys say.
Source: Plansponsor.com, August 2021
Mintz Of Counsel Michelle Capezza authored this Thomson Reuters Practical Law Employee Benefits & Executive Compensation Practice Note discussing cybersecurity best practices for retirement plans to address fiduciaries responsibilities imposed by ERISA.
Source: Mintz.com, August 2021
In the color-by-numbers world of retirement plan fiduciaries, the 3(21) was the first one on the block, followed quickly by the 3(38). Then came the 3(16), widely sold as the silver bullet that would protect plan sponsors from the liabilities lurking around every corner. Now, the 402(a) fiduciary is ready to kick all of them to the curb...if you believe the sales hype, that is.
Source: Dwc401k.com, August 2021
The DOL issued cybersecurity guidance to plan fiduciaries and participants in the form of three separate documents. The first two documents included what amounted to checklists of provisions that plan sponsors should look for in their contracts with service providers such as third-party administrators, trustees, custodians, investment managers, and the like. The third document was directed more toward individuals. This article reviews steps a prudent fiduciary should consider.
Source: Quarles.com, August 2021
The DOL regulations regarding service provider fee disclosures clarify that plan fiduciaries are responsible for assessing the reasonableness of fees charged to plans in relation to services performed. Before a plan fiduciary is able to assess the reasonableness of plan fees, the fiduciary has to receive required fee disclosures from their covered service provider. A covered service provider is considered a party that enters into an agreement with a retirement plan to provide certain services.
Source: Berrydunn.com, August 2021
It is now time for fiduciaries to begin or continue a process to identify and manage both the investment risks and opportunities arising from climate change per their fiduciary obligations under ERISA, especially Department of Labor Interpretive Bulletin 2015-01. This article discusses the unique nature of climate change risk to investments: namely, that it is likely to affect all asset classes and sectors, creating both risk and opportunities for fiduciaries.
Source: Fiduciarygovernanceblog.com, August 2021
Your plan committee can have the most diligent process for choosing and monitoring plan administration and investments, but that will not prevent an excessive fee lawsuit. Even plans with the best consultants and quality 3(21) and 3(38) fiduciary investment advisors still get sued. Here is a checklist to help de-risk your plan.
Source: Euclidspecialty.com, August 2021
Aon surveyed 12 top carriers for fiduciary liability insurance to understand their views on the biggest sources of fiduciary risk within the control of fiduciaries for defined benefit and defined contribution plans subject to ERISA. Read to learn more about the key takeaways from the results.
Source: Aon.com, August 2021
A checklist unveiled this week by a fiduciary training group is designed to help 401k sponsors protect themselves from lawsuits. The new checklist, which the group calls FORT, or Fiduciary Oversight of Responsibilities and Tasks, will make them aware, outlining 79 different items that retirement plans must have covered, said Don Trone, CEO of CBCF. Given how rampant 401k litigation has become, that is crucial, he said.
Source: Investmentnews.com (registration may be required), August 2021
The focus on cybersecurity implies that the DOL will start to hold plans and their fiduciaries accountable for cybersecurity. Besides the specter of a DOL enforcement action, this guidance should remind plan sponsors that if a cybersecurity breach ever impacts their plan, they need to be prepared. Class action lawsuits that argue that they chose the wrong service provider or that PII was misused or not protected are possible.
Source: Enterpriseiron.com, July 2021
While all businesses have been grappling with cybersecurity challenges for years, cybersecurity has recently come into focus for retirement plans, health and welfare plans, and other ERISA plans due to a new DOL cybersecurity initiative. The DOL has quickly followed up on this guidance by incorporating privacy and cybersecurity requests into its audits of employee benefit plans. This article outlines considerations for plan fiduciaries, including employers and investment or administrative committees, to document that they have followed a prudent process to protect the plan from losses from cybersecurity events and to protect the personal data of participants and beneficiaries.
Source: Kilpatricktownsend.com, July 2021
Mitigating Fiduciary Risk: Lessons Learned About the Prudent Person Rule After Fifteen Years of Fee Litigation
Excessive fee litigation has encouraged the reexamination of fiduciary best practices. Although the facts underlying these cases vary, the fundamental questions in each case pertain to the process by which the fiduciaries carried out their responsibilities. As courts have grappled with questions of fiduciary responsibility, a body of case law has been developed that provides valuable guidance on methods plan fiduciaries may use to mitigate their risk if faced with a lawsuit or government investigation. This article addresses the duty of prudence in monitoring plan investments, thereby mitigating fiduciary risk through the lens of that body of case law.
Source: Truckerhuss.com, July 2021
The DOL recently issued guidance concerning a new exemption under the prohibited transaction provisions of ERISA in connection with the provision of investment advice. PTE 2020-02, Improving Investment Advice for Workers & Retirees, became effective on February 16, 2021. On April 13, 2021, the DOL issued additional guidance, in FAQ format, to further explain the Exemption. In this article, the authors explain the significance of this new guidance.
Source: Mwe.com, July 2021
As the retirement plan industry continues to evolve, with new products and solutions announced daily, plan sponsors have to remain diligent that they fulfill their fiduciary obligation to their participants. PLANSPONSOR recently spoke to James about the need for transparency in the retirement plan industry and what plan sponsors should evaluate when examining costs.
Source: Plansponsor.com, July 2021
Thinking about engaging a 3(21) or a 3(38) fiduciary? A new podcast by CAPTRUST discusses some of the key distinctions in terms of risks and responsibilities.
Source: Napa-net.org, July 2021
Retirement account theft is one of the risks cropping up in the employee benefits community. If you are a plan sponsor or a plan fiduciary, it's important to make sure you've thought about how to address this risk that is now well above the horizon. As an ERISA fiduciary, you play a key role in helping your participants guard against the theft of their accounts at the hand of cybercriminals. Take the steps noted above and stay abreast of developments in this rapidly evolving area.
Source: Plansponsor.com, July 2021
The role of retirement plan governance has become increasingly important as employers face increased scrutiny of how they operate their 401k plans in the current legal and regulatory environment. CFOs and human resource managers administering 401k plans and serving on 401k plan committees have increasingly been held responsible for fiduciary breaches. Plan fiduciaries should conduct due diligence to reprice services and replace underperforming funds given asset-based fees and significant growth in plan size, due to rising markets and recurring contributions.
Source: Cpajournal.com, July 2021
In this article, CAPTRUST's Alysa Cronin takes a deep dive into potential 3(38) pitfalls for plan sponsors. Armed with insights from a few industry leaders, this easy read outlines key takeaways on four common plan sponsor pitfalls when selecting a 3(38) investment manager and how to avoid them.
Source: Captrust.com, June 2021
When you're a 401k plan sponsor, you hear a lot about an investment policy statement and how you need one. Yet many plan sponsors don't know what it is or what it does. This article breaks down what an IPS is, what it does, and what it doesn't do.
Source: Jdsupra.com, June 2021
With the significant increase in fiduciary breach class actions, plan fiduciaries have added provisions, including mandatory arbitrations, to their contracts, to gain control of and rein in litigation. The burning question, however, is where do the courts stand on forcing ERISA plan participants to engage in arbitration.
Source: Cohenbuckmann.com, June 2021
If there was ever a meeting that couldn't be replaced with an email, it's that of a retirement plan committee, and while those structures are as varied as the companies that sponsor them, a new survey by the Plan Sponsor Council of America uncovers some key consistencies in structure and approach. Indeed, retirement plan committees have always been an essential element in assuring prudent retirement plan operation and administration. While there is perhaps no perfect number of committees -- or committee members -- their construction, monitoring, and maintenance through rotations and training are as critical to their effective operation as it is to the design of the plan functions they oversee.
Source: Psca.org, June 2021
The US District Court for the Northern District of Illinois handed down a decision in Bartnett v. Abbott Laboratories, dismissing the plaintiff's claims against defendant sponsor fiduciaries in a case involving the theft of $245,000 in the plaintiff's Abbott retirement plan account. Particularly interesting for plan sponsors is the court's discussion of the sponsor fiduciary's standard of care concerning a plan provider's cybersecurity.
Source: Octoberthree.com, May 2021
A new era of employee activism is underway in which plaintiff lawyers find fertile ground for litigation opportunities, catching many employers unprepared. The focal point of the growing number of such lawsuits is the compensation that employers arrange for payment to the vendors of services to the ERISA plans. Underestimating the economic and reputational risks related to deficiencies in the prudent management of ERISA plans threatens an entire enterprise.
Source: Rolandcriss.com, May 2021
Overwhelmed by a lengthy to-do list, including the perpetual need to meet many 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.
Source: Porteval.com, May 2021
Benchmarking retirement plan fees has become more complex in recent years, as it has moved beyond just scrutinizing recordkeeping and administrative fees. There are two ways sponsors can benchmark their fees. There is the traditional approach of doing an external benchmark by issuing an RFI or RFP. The other approach is to use information from a database of plan sponsors to compare fees paid.
Source: Plansponsor.com, May 2021
Given that the majority of plan sponsors and fiduciaries likely already have existing service providers that aid in the administration of their benefit plans, plan sponsors and fiduciaries may consider amending the applicable service agreement to include some or all of the provisions recommended here to the extent there is not sufficient contractual protection under the existing agreement.
Source: Frostbrowntodd.com, May 2021
A fiduciary toolkit equips finance and human resources executives with knowledge, procedures, and performance measurements to drive operations, strategy, and compliance. This 5-page article examines the categories of best practices and how to evidence conformance to them.
Source: Rolandcriss.com, May 2021
In an emerging theory of liability, plan fiduciaries' treatment of participants' data is coming under scrutiny. Over the last five years, we have seen how the collection of many individuals' data can become a valuable asset in the right hands, whether it's used to influence an election, design a marketing plan that targets individuals based on their specific preferences and needs, or just to compile large troves of information to analyze trends.
Source: Truckerhuss.com, May 2021
Does the Recently Amended Investment Duties Regulation Change How Fiduciaries Are Expected to Make Investment Decisions
The final rule on investment decision-making that emerged from the filter of constituent comments does not prohibit fiduciaries of ERISA employee benefit plans from selecting investments that have ESG or other collateral objectives or benefits and does not create different standards for consideration of such investment options. Rather, the amended regulation requires that fiduciaries make investment choices based on consideration of pecuniary factors, which is consistent with the DOL's existing guidance. The final rule does, however, shift focus from considering investment options under the totality of the facts and circumstances to considering only defined pecuniary factors to the exclusion of non-pecuniary factors. This could be a distinction without a difference, however, given the expanded interpretation in the preamble and the flexibility incorporated into the final regulatory language.
Source: Wagnerlawgroup.com, April 2021
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
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