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.
On November 20, the Securities and Exchange Commission charged Kraken, a crypto exchange, for operating as an unregistered securities exchange. This prompted Wagner Law Group partner Kimberly Shaw Elliott to caution fiduciaries of the risks of crypto assets, given their compliance issues. The Department of the Treasury issued a record-breaking multi-billion dollar fine against Binance Holdings Ltd., a crypto exchange, the next day, further compounding the fiduciary risks of crypto assets.
Source: Planadviser.com, November 2023
Investment Committee Best Practices: If a Prudent Decision Was Made and No One Documented it, Did it Happen?
Engaging in prudent behavior is only the first step a plan fiduciary should take, however. Equally important is for the plan fiduciary to be able to demonstrate at a future date when that decision-making process might be called into question that the fiduciary engaged in a prudent process. This article provides some recommendations and insights on committee best practices.
Source: Graydon.law, October 2023
Plaintiff firms continue to be creative in bringing forth fiduciary claims against organizations and those who oversee their retirement programs. It's not enough to just have the right insurance coverage. Organizations need to institute the right internal governance processes to manage their fiduciary liabilities and risks.
Source: Newfront.com, October 2023
In this 13-page article, the author explains that fiduciary status under ERISA does not hinge on the exercise of discretion in some cases because, under ERISA Section 3(21)(A), an entity that exercises any authority or control over the disposition of plan assets becomes a fiduciary.
Source: Wagnerlawgroup.com, October 2023
An explanation and history of fiduciary liability insurance occurred at the ERISA 403b Conference in Washington, D.C. While fiduciary liability insurance initially covered individuals, no one thought it was for a plan or company. It changed in the 1990s and today, fiduciary liability insurance is malpractice insurance for fiduciaries and it generally covers four areas.
Source: Napa-net.org, October 2023
Plan Sponsors want to know how their menu looks compared to peers. There are two primary reasons for this. First, a retirement plan is used as a retention tool and sponsors want to make sure they are competitive with their offering. Second, sponsors have a fiduciary responsibility and want to be in line with industry standards. This article highlights a few aspects of the menu that are not only interesting but important considerations for a fiduciary.
Source: Conradsiegel.com, September 2023
A crisis among retirement plan-sponsoring enterprises is unfolding. The challenge facing their leaders is to ensure that operations managers are equipped with the training, guidelines, controls, and tools that elevate fiduciary risk management to its proper priority. Underestimating the economic and reputational risks related to deficiencies in the prudent management of ERISA plans threatens an entire enterprise.
Source: Rolandcriss.com, September 2023
If there's one big takeaway for plan sponsors following the massive MOVEit cyberattack that breached the personal data of millions of participants in public pension and private-sector workplace retirement plans, it's this: They may need to rewrite their vendor contracts and redouble their monitoring of service providers. While no sponsors have yet been sued, it's not far-fetched to think that they could be, according to legal experts.
Source: Pionline.com, August 2023
Do you understand what it means to be an ERISA fiduciary and the associated responsibilities? Did you know that the DOL requires employers to educate retirement plan committee members on their roles and responsibilities? This recording helps build a strong foundation for understanding what is required of plan fiduciaries.
Source: Multnomahgroup.com, August 2023
A plan sponsor has so many things to do in running a business that they often forget that as a 401k plan sponsor, they are also a fiduciary. So to eliminate some of the burdens, a plan sponsor may want to hire a plan provider that will lessen the burden by serving in a fiduciary capacity. This article is all about the things to avoid when considering hiring plan providers as plan fiduciaries.
Source: Jdsupra.com, July 2023
This guide explains everything you need to know about being a 401k fiduciary. This includes understanding your legal responsibilities and finding ways to reduce your liability and make compliance easier for your plan.
Source: Forusall.com, July 2023
A critical legal duty accompanies the responsibility of employers to manage employee benefit plans fairly and safely. Tactics for managing the associated risks are not intuitive and pose a significant challenge for the typical executives who populate a plan management committee. Risk management is often left for others in an enterprise to consider, but current events mandate a change in thinking and action. A framework of standardized procedures is needed.
Source: Rolandcriss.com, June 2023
In today's increasingly competitive environment, more advisory firms are seeking to differentiate themselves and grow AUM by formalizing their commitment to fiduciary excellence. 139 investment advisory firms from around the world have done just that, achieving certification by the Centre for Fiduciary Excellence. This report provides an inside look at how those advisory firms operate their practices.
Source: Broadridge.com, June 2023
Employee benefit plan sponsors may need to hire an independent fiduciary in certain situations to avoid conflicts of interest and prohibited transactions under ERISA. What is an independent fiduciary, and when might a plan need one?
Source: Wagnerlawgroup.com, May 2023
ERISA was created with important protections for plan fiduciaries who are judged as prudent experts under ERISA's fiduciary standard of care. In this article published May 24, 2023, by Law360, ERISA attorney Jeff Mamorsky explores the history of ERISA and why the underpinnings of ERISA are more important than ever.
Source: Cohenbuckmann.com, May 2023
The Defined Contribution Institutional Investment Association published this month a governance model guide for plan sponsors, "Defined Contribution Plan Governance Models: A Guide for Plan Sponsors." The guide outlines governance and fiduciary structures that plan sponsors can elect to fit their plan's needs.
Source: Planadviser.com, April 2023
A new wave of lawsuits focuses on the alleged underperformance of certain TDFs that many plan sponsors use as their plan's default investment option. In these most recent cases, each of the defendants offered the Blackrock TDFs as the default investments in their DC retirement plans. These new lawsuits allege that investment returns were sacrificed in favor of plan sponsors chasing low fees. The claims are largely that the BlackRock TDFs are inappropriate for institutional plans and that fiduciaries were not prudent in selecting these lower-cost investment options.
Source: Icemiller.com, April 2023
Finding missing retirement plan participants is an ongoing -- and necessary -- challenge for employers. Whether your organization offers a defined contribution or a defined benefit pension plan, you have a fiduciary duty to find missing participants.
Source: Usicg.com, April 2023
Principled Performance is an approach to the fiduciary role by which managers reliably achieve objectives, address uncertainty, and act with integrity on behalf of the employees and their beneficiaries who participate in employee benefit plans.
Source: Rolandcriss.com, April 2023
In response to the continued proliferation of lawsuits against retirement plan fiduciaries, fiduciary liability insurers are raising rates, limiting coverage, and expanding their due diligence of fiduciary processes. This article provides a checklist that includes tips and best practices for policyholders to ensure they are in a strong position to obtain retirement plan fiduciary coverage when it comes time to review and avoid coverage denials when it comes time to pay benefits.
Source: Bradley.com, December 2022
ERISA Fiduciaries May Consider ESG Factors in Selecting Investments and Exercising Shareholder Rights
This final rule effectively overturned two rules published in the last months of the Trump administration, which essentially prohibited the consideration of ESG factors when ERISA fiduciaries selected investments or exercised shareholder rights. In effect, the Biden administration has now enabled fiduciaries managing ERISA funds to consider "factors [that] may include the economic effects of climate change and other ESG considerations on the particular investment or investment course of action."
Source: Mintz.com, December 2022
Section 404(c) of ERISA relieves fiduciaries from liability for participants' and beneficiaries' investment decisions in participant-directed individual account plans (like 401ks) if four requirements are met. They are reviewed in this article.
Source: Verrill-law.com, October 2022
The biggest value to using an independent fiduciary in this context is that it dramatically increases the likelihood that a plan fiduciary, sued for the drop in value of employer stock held by employees in a benefit plan, can end the case at the motion to dismiss stage. Author reviews why this is.
Source: Bostonerisalaw.com, October 2022
The DOL expanded its interpretation of fiduciary advice in the Preamble to PTE 2020-02 and as a result, many more broker-dealers and their registered representatives are fiduciaries for their recommendations to retirement investors, including rollover recommendations. Broker-dealers should implement good processes and documentation to satisfy the PTE conditions and closely supervise their investment professionals to ensure that the processes are followed.
Source: Brokerdealerlawblog.com, September 2022
More advisory firms are seeking to differentiate themselves and grow AUM by formalizing their commitment to fiduciary excellence. 139 investment advisory firms from around the world have done just that, achieving certification by the Centre for Fiduciary Excellence, the gold standard for signifying adherence to fiduciary best practices. This report provides an inside look at how those advisory firms operate their practices.
Source: Broadridge.com, September 2022
Having clear policies and procedures for 401k plans helps employees involved in the plan administration do their job more efficiently by mapping out steps to take when various situations arise. ERISA and the DOL guidance recommend retirement plans maintain some of these policies and, while not required by law, are helpful in the event of a DOL audit or participant litigation. This article reviews what policies you should consider having and what they entail.
Source: Consultrms.com, August 2022
On July 26, 2022, the DOL released a proposed amendment to Prohibited Transaction Class Exemption 84-14, known as the Qualified Professional Asset Manager exemption. The QPAM exemption is frequently relied on by investment fiduciaries, including fund managers and investment advisers, to avoid engaging in transactions concerning employee benefit plans that might otherwise be prohibited by ERISA. If adopted, the proposed amendment would, among other things, increase the minimum capitalization and assets under management requirements for a manager to qualify as a QPAM, require that QPAMs register with the DOL, and require that agreements between QPAMs and their clients be amended to include specific indemnity and other provisions.
Source: Lowenstein.com, August 2022
These amendments would significantly impact entities that rely on the QPAM Exemption, as well as plans, plan fiduciaries, counterparties to transactions involving QPAMs, and others. The amendments would impose significant compliance burdens and costs on QPAMs, including the need to amend existing agreements to comply with the conditions. Additionally, the indemnification and hold harmless provisions are likely to increase the potential liabilities of a QPAM that becomes disqualified.
Source: Fiduciarygovernanceblog.com, August 2022
Due to the growing popularity of and attractive returns on cryptocurrencies, 401k participants are urging plan fiduciaries to permit these investments. However, crypto investment can be an unpredictable ride. Whether this volatility can be squared with fiduciary duties imposed by ERISA needed clarification. ERISA's fiduciary duties have been described as the "highest known to the law." Fiduciaries wrestle with related issues including: Should crypto be part of the core investment menu available to all plan participants? Do fiduciaries have an obligation to limit crypto investment even in a plan's self-directed brokerage option?
Source: Fisherphillips.com, July 2022
As fiduciaries, defined contribution plan sponsors must act in the best interest of all participants and ensure that the plan itself does not cater to one person or group over another. To make sure this rule is being followed, ERISA requires that plans undergo annual compliance tests. To help prevent any potential issues, plan sponsors need to understand the testing requirements and communicate with service providers regarding any changes to the plan. This article presents ways a plan sponsor can potentially avoid testing issues and correct them when they arise.
Source: Bdo.com, July 2022
"That reasoning was flawed." With those four words, the Supreme Court of the United States reaffirmed that retirement plan fiduciaries' responsibilities apply independently to each investment option. Offering a lot of investment options does not eliminate the responsibility related to each of them. Offering some cheap investment options does not excuse expensive ones. Offering some stronger performers does not excuse poor performers. The bad stuff is not okay simply because there's also some good stuff. This 12-page paper underscores why plan fiduciaries must take notice of this ruling.
Source: Qualifiedplanadvisors.com, July 2022
The DOL recently issued a warning about its intention to launch an investigative program into those plans that offer cryptocurrency and related products as investment options. The DOL's investigative program would include those products offered through brokerage windows, implying that plan fiduciaries might be responsible for those investments. Therefore, plan fiduciaries need to carefully consider their potential responsibilities concerning brokerage windows, both concerning cryptocurrency and investments.
Source: Hallbenefitslaw.com, June 2022
The legal community's persistent emphasis on fees paid by retirement plans to their service providers has set the stage for a turn in the vulnerability of the individuals who oversee retirement plans. Fiduciary liability insurers have taken note of the recent surge in lawsuits leveled against employers and their executives for allowing service providers to charge excessive fees to the retirement plans they sponsor and manage. The result is a significant increase in many employers' risk exposure.
Source: Rolandcriss.com, May 2022
Businesses that provide recordkeeping services to defined contribution retirement plans are merging at a dizzying rate. What considerations should plan sponsors resolve when a competitor or aggregator acquires their recordkeeper or third-party administration firm?
Source: Rolandcriss.com, April 2022
When Providers Use Plan Participant Data for Purposes Unrelated to a Plan: What Employers Need to Know
There is a growing trend of using participant data to cross-sell financial products unrelated to plan recordkeeping by large recordkeepers and asset custodians of employer-sponsored retirement plans. In light of the fact that plan fiduciaries are ultimately legally responsible for the management and mismanagement of a retirement plan, this trend to use participant data may raise issues for employers in their role as plan sponsors and fiduciaries.
Source: Ogletree.com, April 2022
Plan sponsors considering collective investment trusts for their 401k plans should focus on the product provider's CIT governance policies and procedures, according to industry experts.
Source: Planadviser.com, April 2022
The DOL is warning 401k plan fiduciaries to "exercise extreme care" before considering whether to include a cryptocurrency option in a plan investment menu. The sternly worded guidance, in Compliance Assistance Release No. 2022-01, published March 10, reveals heightened skepticism of 401k cryptocurrency investments and predicts new DOL enforcement activity for fiduciaries who permit participants to invest in cryptocurrencies.
Source: Shrm.org, March 2022
Compliance Assistance Release No. 2022-01 is a significant departure from DOL's established regulatory norms. The author states that they are not aware of any other instance in which DOL has made such sweeping statements about the potential prudence of an entire asset class. DOL has recently elected to back away from proposals to create special standards for specific asset classes. However, in the Release, DOL implies that the agency will presume that fiduciaries making cryptocurrencies available have acted imprudently.
Source: Groom.com, March 2022
The Supreme Court recently handed down its eagerly-awaited decision in Hughes v. Northwestern University. Plan sponsors and 401k and 403b plan administrators had hoped the decision would create clearer pleading standards to free them from the endless line of ERISA class actions alleging fiduciary malfeasance when selecting investment menus and plan service providers. It didn't and now those fiduciaries have some more thinking to do.
Source: Cohenbuckmann.com, March 2022
A Covered Service Provider must provide a 408(b)(2) disclosure to the retirement plan fiduciaries. This article describes what is in a 408(b)(2) disclosure, why is this disclosure necessary, and some 408(b)(2) best practices.
Source: Multnomahgroup.com, February 2022
The Supreme Court did not rule on the viability of Hughes' claim nor on whether the case should be heard. It just stated that the Seventh Circuit cannot dismiss the case in the manner which it did. The Seventh Circuit must now reconsider whether to dismiss the case. Despite the nature of the Hughes case, the wording in the Supreme Court decision may have an impact on how other 401k cases are treated.
Source: Fiduciarynews.com (registration may be required), January 2022
401k plans face significant cybersecurity risks for which there is no federal safety net. Service providers are very much on the front line, but plan fiduciaries need to treat cybersecurity with the same high degree of diligence that they exercise with investment decision-making and all other plan administrative matters. The key to mitigating risk is conducting a self-assessment using the Cybersecurity Preparedness Checklist for Plan Fiduciaries and building a strategy around the results of that assessment.
Source: Mcdonaldhopkins.com, January 2022
Organizations that sponsor employee benefit plans are generally responsible for ensuring that their plans comply with federal law, including ERISA. Many sponsors rely on service providers to advise and assist them with their employee benefit plan duties. But service providers to retirement plans are changing their stripes. That makes the job of selecting and monitoring them more challenging than ever.
Source: Rolandcriss.com, January 2022
Technology-empowered threats to the security and confidentiality of retirement plan assets and data are exploding. Current fiduciary management methods largely lack a formal interface with the information technology function and its storehouse of expertise. These two realities demand that fiduciary committees embrace their enterprises' information technology departments in a new era of collaboration.
Source: Rolandcriss.com, January 2022
SAS 136 transfers a significant amount of liability for an audit's accuracy from an auditor to a plan's fiduciaries. SAS 136 intends to enhance the quality of audits of ERISA plans by adding new procedures to CPAs' audits beginning December 15, 2021. The burden for producing the added plan-related documentation required will likely fall to employers' human resources departments.
Source: Rolandcriss.com, January 2022
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