401k fiduciary court cases have
awakened many plan sponsors over recent years. Fiduciary responsibilities
are better to be managed than argued as 401k fiduciary court cases. Growing
numbers of plan sponsors have faced 401k fiduciary court cases where the plan
fiduciary’s actions have been called into question. The question the
courts are grappling with is whether fiduciaries have sufficiently fulfilled
their fiduciary duty to the plan or its participants. The outcomes of 401k
fiduciary court cases have been mixed, but a decent number of the rulings have
come out in favor of the plaintiffs, who are usually a participant or group of
participants who have brought a case against the plan sponsor. Many of these
401k fiduciary court cases have focused on absolute fees, the reasonableness of
fees and the necessity of specific fees. Do the fees and services that were are
being assessed add value? Do they help participants to achieve their
retirement goals?
The headline of a recent article
in the Valdosta Daily Times, a local newspaper in Georgia, asked the
all-important question: “How’s your 401(k) plan?” The author, Kent Patrick of
financial advisory firm Bush Wealth Management, aptly points out that it’s a
question plan sponsors don’t ask enough. Moreover, he asks: Is your 401(k) plan
as good as it could be? That’s a heady question. Let’s step back and start
with: How often do you check up on your retirement plan and fees? Most experts
agree at least annually is ideal.
Here’s one major reason why it
matters: Mr. Patrick points to two landmark rulings from the historic Tibble v.
Edison International 401(k) fiduciary court case. One was from the
Supreme Court in 2015; the other from the U.S. District Court for the Central
District of California in 2017. You can read the details of the cases in the
article linked above, but basically, the outcome was that Edison International,
the plan sponsor, had committed a breach of fiduciary duty by selecting higher-priced
mutual funds for its investment menu when equivalent, lower-cost ones were
available. In addition, the Supreme Court ruled that, under the Employee
Retirement Income Security Act (ERISA), the law that governs retirement plans,
a plaintiff can initiate a claim for violation of fiduciary duty by a plan
sponsor “within six years of the breach of an ongoing duty of prudence in
investment selection.”
Investment committees need to be aware
of their fiduciary duties and remain vigilant in carrying out duties. As
Investment and retirement plan committees have as much fiduciary responsibility
for selecting plan investments and monitoring their fees as every other
fiduciary. Benchmarking investments and monitoring costs is
time-consuming. However, so is dealing with a 401(k) fiduciary court cases when
participants sue for a breach of those duties.
Here’s something to check: Is your
retirement plan using institutional share classes in your investment lineup?
Why does this matter? In Tibble v. Edison, it was found that the
investment committee selected retail shares rather than institutional shares.
Institutional shares typically cost less than retail shares. It may only be a
few basis points, but those seemingly small differences make a huge impact when
it comes to your participants’ ability to build wealth for retirement over
time. The lower the fees they pay today, the more of their savings they can put
to work for their future.
If it’s been a while since you’ve
undertaken any benchmarking exercises, now, is as good a time as any to
assemble your retirement plan committee to review the plan’s investment lineup
and fees. Make sure the fees are reasonable and necessary, and that
participants’ best interests are represented first and foremost. Your employees
rely on their workplace retirement plan to help them build wealth and financial
security for their future. As a plan fiduciary, it’s your responsibility to
help them achieve those goals. Taking some time to evaluate the plan’s
investment menu and fees, and adjust fees as necessary. It is the best way to
avoid 401(k) fiduciary court cases, and help your participants live well in
retirement.