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Plan Sponsors Should Create a Realistic IPS

By Kristen Heinzinger editors@plansponsor.com | October 12, 2012
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October 12, 2012 (PLANSPONSOR.com) – Plan sponsors and fiduciaries can learn from federal court findings in Tussey v. ABB Inc. and should avoid overly detailed investment policy statements (IPS), a white paper asserted.

The court found that ABB’s plan sponsor and other plan fiduciaries failed to follow the plan’s IPS; failed to monitor recordkeeping costs paid through revenue sharing and hard dollars, and to negotiate rebates for the plans; failed to prudently deliberate prior to removing and replacing investment options in the 401(k) lineup; selected more expensive share classes for the plan’s investments when less expensive ones were available; and allowed revenue sharing from the 401(k) plans to subsidize other unrelated corporate services (see “Employer to Pay for Failing to Monitor RK Costs”).

This case can teach valuable lessons, according to Janus Capital’s white paper, including that fiduciaries should routinely review and revise the IPS to ensure that their fiduciary actions are consistent and the IPS is up to date and reflects both the plan sponsors’ intent and the new regulatory environment, the white paper said. Plan sponsors and their advisers should also ensure that the IPS is not overly detailed and restrictive as to cause unintended liability. They should continue to remain vigilant by developing an ongoing process for determining whether plan fees are reasonable in light of the services provided, and thoroughly documenting the basis for all investment decisions.  

The white paper outlines other lessons plan sponsors and fiduciaries can learn from this case including:

Fiduciaries have an ongoing obligation to monitor plan fees: A November 2005 Mercer report showed that ABB overpaid for Fidelity’s plan recordkeeping services, and ABB fiduciaries ignored the analysis and its conclusion that fees were too high. It also showed that the revenue sharing from the 401(K) plans appeared to be subsidizing other services provided to ABB by Fidelity (including recordkeeping for the company’s defined benefit plan, its deferred compensation plan, its health benefits and its payroll). Plan assets cannot be used to subsidize other employer plans because it is a violation of ERISA’s “exclusive benefits rule.”