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.

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.

Better results:  Consistent with the Duty of Loyalty, wouldn’t you expect better long-term results for your employees if you do the following? 

  • Monitor you plan’s key metrics.  The participation and contribution rates, investment allocations, redemption and loan activity, and other participant behaviors provide important clues about your employees’ well-being and education needs. 
  • Discuss your plan demographics, including investment sophistication and age.  Do you offer the right asset classes and allocation tools to meet your employees’ specific needs? 


Reduced risk of punishment:  Consistent with the Duty of Care, a tightly managed plan is less likely to experience below-average results, which may lead to fewer claims.  A tightly managed plan may also be expected to encounter fewer fiduciary breaches or other regulatory issues. 


Who should attend?  Anyone with a vote at the review meeting will be acting in a fiduciary capacity, and they should understand and accept this responsibility.  A recent study stated that about half of all plans have a committee that makes the plan decisions.  That number jumps to 90% for plans with over 1,000 participants.  If you have a committee, remember that some plan decisions involve matters other than investments, so you can decide whether decision making should be bifurcated.   Generally, committees include senior management from Finance and HR. 


Minutes: This is not legal advice, but many experts recommend that meeting minutes be taken by the employer and written with the expectation that they will be held up for later scrutiny.  If a question is raised in the minutes, it should be clearly addressed.  Votes should be recorded, etc. 



  • We like to begin review meetings with a presentation on the economy and markets.  This perspective is useful in making subsequent investment decisions, and it is consistent with the Duty of Care.   


  • A written report that includes all of the plan’s investment options should be distributed.  It should contain sufficient data and analysis that the fiduciaries can make an intelligent decision on whether to retain or replace each of the options.  If you work with an adviser, their recommendation for each option should be clearly indicated.  Data to consider on each option includes: 
  • Tenure of the current management/team 
  • Performance over a range of timeframes, both absolute and relative to that investment’s benchmark and peer group 
  • Risk measurements, risk-adjusted returns and capture ratios, as appropriate 
  • Any significant changes in mandate, governance, management, asset size, portfolio allocation, style, etc. 
  • Costs, restrictions 


(1) Reports from plan vendors can contain a great deal of useful information.  To the extent that they are missing any data that would allow the fiduciaries to make well-informed, objective decisions, supplementary information should be obtained from another source and it should be made part of the meeting’s record.
(2) Don’t just judge the plan’s investments against a limited universe of alternatives offered by your vendor.  Judge them against the broader universe.  Depending upon the economics of your plan, you may be able to request “outside” funds as appropriate.
  •  If your plan offers asset allocation portfolios or other managed accounts, their risk-adjusted performance should be reviewed as well 
  • All decisions should be consistent with the plan’s Investment Policy Statement (IPS).  A carefully worded IPS can be a big help to the plan’s fiduciaries and participants.  But -- this is really important -- a poorly worded IPS can be a source of much potential liability.  Your IPS should be reviewed by an attorney knowledgeable about such matters. 
  • Fee disclosures – Plan-level disclosure is here now, and participant-level disclosures will be here during Q2.  Discuss these in detail with your service providers.  Fiduciaries are obligated to understand all of the fees charged to the plan and to determine their reasonableness.  This will involve some sort of benchmarking on your part.  You should decide whether the participant-level disclosures should be accompanied by some form of communication. 
    • As part of fee disclosure, you should make sure you know exactly who is being paid how much, and its composition.  Do you have a broker or advisor?  Do they earn the exact same percentage compensation from each of the plan’s investments (“levelized compensation”)?  If not, there may be a prohibited transaction, so it is really important to understand this.   
  • Does your plan have an ERISA account to collect revenue sharing from the investment vendors?  If not, ask your vendor to explain the current economics of your plan and whether an ERISA account is feasible.  If you do have one, consider establishing a policy on how any excess revenue will be used. 
  • Review the demographics and success metrics that were mentioned earlier to see if any employee communication or education campaigns are indicated. 
  • Are there any new regulations, trends or developments that the fiduciaries should learn about? 
  • Review the administrative side of the plan.   
    • Have all contributions been processed in a timely fashion? 
    • Were there any issues with the plan’s discrimination testing? 
    • Are there any issues related to Form 5500 filings? 
    • Is the plan otherwise being operated in compliance with its document? 
      • Are eligibility and entry dates being carefully observed? 
      • Is service being properly tracked for eligibility and vesting? 
      • Are matching contributions being calculated in accordance with the document? 
      • Are loans being administered properly? 
      • Are distributions being processed in accordance with the plan’s terms? 
    • Are any document updates or amendments needed? 
    • Have all required notices been distributed in a timely fashion?  (SAR, SMM, SPD, Safe Harbor, Auto Enrollment, QDIA, etc.) 
    • Are the service providers performing satisfactorily? 
  • Any other business?  Set time for next meeting. 


Summary:  Plans have lots of moving parts, and lots of possibilities.  Lots of things can go wrong, but there is no reason why your experience should be anything but positive if you manage your plan tightly.  The review meeting presents a focal point where your team of decision makers can get together and ensure that everything that should be done is being done, and vice versa.  Having a clear understanding of what is expected under ERISA can help to structure the agenda for your reviews and, more broadly, the way your plan is managed.  It is important to understand whether your service providers are accepting any fiduciary responsibility, to filter their input accordingly, and to decide whether to seek supplementary advice elsewhere.    


Jim Phillips, President, and Patrick McGinn CFA, Vice President, Retirement Resources 


Patrick and Jim have over 50 years of combined investment and retirement plans experience.  Retirement Resources in a Registered Investment Advisor that helps employees retire with greater security, while helping employers manage workload, costs and fiduciary liability. 



NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.