As a retirement plan sponsor, you’ve got many responsibilities. But once you get the plan setup and do extensive research to offer a great lineup of professionally managed, low-cost mutual funds, you’re done, right?
Not so fast.
As a retirement plan sponsor, never forget that you are considered a fiduciary for the plan. That means you must always put the interests of the participants first. It’s their money and you are entrusted to look out for it.
As modern day plan sponsors are finding, that responsibility cannot be understated.
Let’s say you pick a fund family or group of funds that offer value for reasonable fees. That’s great, you’re doing your job. You document everything fully. Are you done? No. These funds each have a lot of moving parts. Things can change:
- The fund manager(s) may change.
- The fund may change its investment approach.
- The fund may stray from its investment approach
- The management may not execute on their plan effectively
Then there are other factors that might not impact the fund, but still impact your participants. For example, maybe fund management fees start dropping in the industry, making quality, lower cost options available.
Continuing Fiduciary Duty Confirmed by the Supreme Court
That’s why it’s important to understand that your responsibility does not just lie with selecting the initial fund lineup. You’re responsible for continually monitoring the funds to make sure they remain a prudent choice for your participants.
This was underscored in 2015 when the United State Supreme Court held that employers have a continuing fiduciary duty to monitor the investment alternatives offered under the retirement plans they sponsor. In this case involving Edison International 401(k), the Supreme Court justices were unanimous in their finding that monitoring investments in a retirement plan is a “continuing duty”.
The ruling also provide some specific guidelines, too:
- Plan sponsors or an investment fiduciary have a continuing duty to review plan options and remove any investment options that become imprudent.
- That continuing duty requires that the creation of a process to regularly review the plan’s investment options and take action when needed.
The message is clear: if you haven’t been regularly reviewing mutual funds in the plan, you need to start now. And it needs to be done regularly with an organized, documented process.
What’s Your Process?
Since most plan sponsors are not investment experts, this is where your retirement plan advisor can (and already should be) helping.
At Capital Research + Consulting, over the years, we’ve identified a handful of signals mutual funds give off prior to faltering. Our research has found that these signals usually result in later underperformance. We’ve invested in automating that research. Our Early Warning System continuously monitors our client’s plan investments. We receive an alert when and if it signals. At that time, we’ll research and recommend a suitable replacement.
That’s just an example of our process. Be sure that your retirement plan advisor creates a process based on best practices as that is likely what the courts will be looking for.
This is where it’s also important that you employ a retirement plan advisor who is very experienced with retirement plan administration. If you hire a generalist advisor who just manages a few plans, you risk potential problems, since they may not be that aware of the issues they may face.
So learn a lesson from the Tibble v Edison case: the courts take this responsibility seriously. As a fiduciary, you not only have corporate responsibility, you potentially have personal liability too. (You can learn more about that in our previous article on fiduciary responsibility).
Whatever you do, understand that attorneys and courts will be watching. So don’t put this off….double check you’re doing this now, for the good of all parties involved.
Download our Free EBook for More Tips
For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:
- Learn about your role as a retirement plan fiduciary
- Action steps you can take to identify any areas where you need to do more
- How to identify and implement best practices
As potential risks rise, make sure your organization is prepared. Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.
