PLANSPONSOR Roadmap: Fiduciary 101 Benchmarking Investments and Fees

As retirement plan litigation continues to reshape how employers oversee workplace savings programs, fiduciary experts say the greatest risk facing plan sponsors is not choosing the wrong investment but failing to demonstrate a careful process behind their decisions.

That message emerged clearly during the February 25 final session of PLANSPONSOR’s Fiduciary 101 webinar series, a session which focused on the process of benchmarking investments and fees, a core obligation under the Employee Retirement Income Security Act, which governs private sector employer-sponsored retirement plans.

The video of this session is available here.

According to Encore Fiduciary, plaintiffs filed 155 ERISA complaints in 2025, 94 of which concerned alleged excessive fees or selection of imprudent investments.

Speakers at the session—Summer Conley, head of benefits and executive compensation at law firm Faegre Drinker, and Michael Kozemchak, an investment consultant—emphasized that fiduciary responsibility under ERISA hinges on process—how committees select, monitor and document investment decisions—rather than whether funds outperform markets in hindsight. As regulatory scrutiny, fee transparency requirements and participant lawsuits continue to grow, employers are being pushed to benchmark with greater rigor everything from investment performance to administrative costs.

Case law, including the 2022 decision by the U.S. 6th Circuit Court of Appeals in Smith v. CommonSpirit Health, has made it clear that ERISA does not mandate investment performance.

“ERISA … does not give the federal courts a broad license to second guess the investment decisions of retirement plans,” the 6th Circuit’s decision stated. “It instead supplies a cause of action only when retirement plan administrators breach a fiduciary duty by, say, offering imprudent investment options.”

Process Over Prediction

ERISA does not require plan fiduciaries to forecast market winners, Conley said. Instead, it requires them to act prudently and solely in participants’ interests—standards that regulators interpret through evidence of informed decisionmaking.

“No one expects fiduciaries to have a crystal ball,” Conley said, adding that there is, however, an expectation that fiduciaries use a “reasoned and informed process.”

That process typically includes comparing funds against peers, reviewing fees, ensuring diversification and conducting regular monitoring—often quarterly— after investments are selected. Documentation of those reviews has become increasingly important in defending against litigation.

The Benchmarking Imperative

Benchmarking—comparing a plan’s investments and fees against similar retirement plans—has become one of the most important fiduciary safeguards, the experts said.

Kozemchak noted that plan menus have shifted dramatically over the past two decades. While large defined contribution plans once offered dozens, sometimes hundreds, of investment options, many sponsors now favor streamlined lineups designed to reduce participant confusion and litigation exposure.

Providing duplicate funds within the same investment category, he said, can raise red flags. Too many choices may overwhelm participants, while too few could limit diversification—a balance courts have increasingly scrutinized.

Benchmarking tools, consultant analytics and recordkeeper data now allow sponsors to compare asset classes, fee structures and utilization rates against peer plans, helping committees justify decisions.

Fees, Revenue Sharing and Legal Risk

A major area of concern involves investment fees and revenue-sharing arrangements — payments embedded in mutual fund expenses that help cover administrative costs.

While permissible, revenue sharing has drawn lawsuits alleging that participants in certain funds unfairly subsidize plan expenses for others. As a result, many employers are moving toward lower-cost share classes or eliminating revenue sharing altogether.

Insurance carriers underwriting fiduciary liability coverage are also paying closer attention to expense ratios, speakers said, particularly when plans retain higher-cost funds despite the existence of cheaper alternatives.

One solution the experts said can help committees that lack investment expertise is outsourcing investment decisions to professional managers that provide different levels of service. Advisers serve as 3(21) managers provide advice and recommendations, while 3(38) fiduciaries under ERISA exercise discretion over investment decisions. But delegation does not erase fiduciary duty. Even when authority is transferred, plan sponsors must monitor the manager’s performance and fees, Conley said.

Additionally, target-date funds, now the qualified default investment alternative for millions of workers, also require periodic evaluation. Experts advised sponsors to review glide paths, risk levels and costs annually, rather than attempting to analyze every underlying holding.

Managed accounts—personalized allocation services—are increasingly viewed as value-added options, rather than as offering excessive choice, particularly for younger workers seeking guidance or retirees navigating withdrawals.

Documentation as Defense

Perhaps the strongest consensus among the speakers was that fiduciary success depends on documentation. Committee minutes should reflect that investments were reviewed, debated and evaluated against policy guidelines, even if discussions themselves remain concise.

“In litigation,” Conley said, “you want to show that you went through that [prudent] process.”

The webinar also highlighted emerging developments likely to shape future federal oversight, including anticipated Department of Labor guidance on alternative investments and evolving rules governing environmental, social and governance considerations for selecting retirement plan investments.

For plan sponsors, regardless of emerging developments, speakers said the main point to consider was that fiduciary responsibility is becoming less about investment selection alone and more about governance discipline.

As Kozemchak put it, replacing an underperforming fund may ultimately be simpler than defending why it remained.

“You don’t see many competent carpenters trying to straighten out a bent nail,” he said. “They simply get a new nail.”