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Review Season Approaching. Run Tight Meetings or Run the Risk

January 6, 2012 (PLANSPONSOR (b)lines) - If you can’t prove that you have reviewed your plan’s performance and operations and made changes as appropriate, you will have little defense against examiners and plaintiffs.

By PS | January 06, 2012
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Board Members and Senior Management should be participating in, or overseeing, tightly organized periodic reviews.  Doing so should lead to better results and reduced risk of punishment. 


True or false?  If your plan provider is a major national mutual fund company or insurance company, it’s safe to rely upon their “recommendations” or assurances that everything is OK.   


The answer is false for a number of reasons:   

  • Most plan vendors deliberately avoid fiduciary status.  This keeps them out of the liability chain and it leaves them free to pursue an agenda that may differ from your participants’ best interests.  This isn’t illegal or immoral - it’s smart.  They are accountable to their shareholders, whereas you are accountable to your plan participants. 
  • Most vendors provide information, rather than advice or recommendations.  This is a subtle, but important difference that determines which side of the table they sit on.  Ask them to clarify their status – fiduciary or not?   
  • Under ERISA, plan-level decision makers are considered fiduciaries, and fiduciaries are held to a prudent expert standard of care.  Unless you have the expertise in-house to meet this standard, you have no way of knowing whether things really are OK. 
  • If fiduciary actions should have been taken, but weren’t because you had a false sense of security from your vendor’s “all is well” report, guess what… 
  • Employers are increasingly turning to independent advisers for objective, expert help managing their plans.  Plans are getting increasingly complicated, with new regulations, additional disclosures and rapid evolution on the “product” side.  It’s something to think about.   


For more on this topic, see Plan advice: All set? Maybe, maybe not! Part 1: The all-important difference between information and advice.


Duty of Loyalty and Duty of Care:  Fiduciaries can frame their review meeting agenda within the two major duties set out for them under ERISA.  The Duty of Loyalty requires fiduciaries to act solely in the best interests of the plan’s participants, and it has recently been interpreted to include deliberate efforts to promote the retirement security of the covered employees.  Efforts to promote plan usage should be covered within the agenda. 


The Duty of Care requires fiduciaries to perform their investment oversight at the competence level of a prudent expert.  There is no safe harbor for “best efforts” or relying upon a vendor’s report per se.  Fiduciaries are not obligated deliver the best return or the lowest expenses, but there must be a solid basis for their decisions.  A prudent investment process, anchored by a carefully worded Investment Policy Statement should be at the core of plan management and of the review agenda.