PSNC 2023: Non-Intuitive Ways to Be a Good Fiduciary

While most fiduciaries are aware that they must follow the standards outlined in ERISA and manage their plans with the utmost due diligence, there are certain processes and procedures that often get overlooked, according to a panel of experts who spoke at the PLANSPONSOR National Conference in Orlando. 

Bradford Campbell, an ERISA attorney and partner in Faegre Drinker Biddle & Reath LLP, said during a “Non-Intuitive Ways to Be a Good Fiduciary” session that it does not necessarily matter if a plan sponsor makes a wrong decision, but, rather, it matters how—and the process by which—they made that decision

“The [main] issue is: Are you making decisions that follow a prudent, thorough and well-documented process?” Campbell said. “If those decisions are wrong, it’s OK. We can be wrong, as long as we’re wrong the right way.” 

Julie Doran Stewart, senior vice president of retirement plan adviser services at Sentinel Benefits & Financial Group, outlined a number of practical processes to which sponsors should pay attention. 

Documentation 

First, Stewart said it is vital that plan sponsors have governance documentation in place, such as having investment policy statements, committee charters and documentation of meeting minutes. She added that investment policy statements should be flexible so that a plan sponsor is able to adhere to all the rules outlined and avoids falling out of compliance.  

The treatment of revenue sharing is also often overlooked by plan sponsors, according to Stewart. While she advocated for eliminating or minimizing revenue sharing as much as possible for plan investments, she recognized that there are still some plan sponsors who rely on revenue sharing to help cover the costs of their plan.  

“[I] recommend that [plan sponsors] document in [their] investment policy statement what the committee and plan’s approach is to something like revenue sharing, because we want to be able to point back to a philosophical decision [that was] made and [show] it is something that everyone on the committee is aware of,” Stewart said.  

Pro-Active Approach 

Stewart also pointed out that there has been a record number of mergers and acquisitions in recent years, including mergers of retirement plans, so it is important that fiduciaries reach out to their advisers and service providers when they are going through any sort of merger or acquisition that could affect the plan. These trusted advisers or vendors can help a fiduciary navigate any potential pitfalls associated with merging with a plan that might have “negative baggage” associated with it, Stewart said. 

Regarding investments, if there is a fund in a plan sponsor’s investment lineup that is not performing well, Stewart said it is always best for plan sponsors to be pro-active and provide documentation showing they changed out that offering in a purposeful effort to improve the investment lineup.  

Stewart said that is preferable to resisting such a change out of concern it could disrupt plan participants.  

“You don’t often see litigation associated with too many actions taken on the part of the plan sponsor,” Stewart said. “When we see litigation in the retirement space, it’s typically because people are asleep at the switch.” 

Security 

Campbell also cited cybersecurity as another example of a non-intuitive fiduciary issue to consider. As per the Department of Labor’s guidelines, plan sponsors have the responsibility to protect their participants’ personal information. 

No matter the size of the plan or how sophisticated its cybersecurity is, Campbell said it is important that plan sponsors at least ask questions about how advanced their system needs to be to uphold their fiduciary responsibility. Again, Campbell emphasized the importance of documenting that process.  

Campbell said there is no specific time period, from a legal standpoint, in which a fiduciary needs to review plan documents that may be “out of date.” However, he said if a plan sponsor changes recordkeepers, that is a good time to review documents, and he recommended reviewing documents every three years.  

Beth Conradson Cleary, executive director of Milwaukee’s 457(b) deferred compensation plan, said the spring failures of several regional banks caused her board to conduct a “fire drill exercise” and re-evaluate the custodian banks associated with the plan and with their recordkeeper, Voya. Conradson Cleary said documenting this exercise was an example of a “non-intuitive” practice into which her committee invested time. 

Conradson Cleary said she conducts quarterly strategic operational meetings with the plan’s recordkeeper and keeps a running master list of topics that to review. In addition, she and her committee conduct quarterly call-monitoring sessions during which they review the calls made from their participants to Voya to better understand developing issues that participants are experiencing and how they are being addressed.