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Losing Sleep Due to Fiduciary Responsibilities?


Given today’s tumultuous market, it’s no wonder that insomnia plagues many 401(k) plan fiduciaries. Fiduciary responsibilities can be daunting even in a calm environment; this constant upheaval brings an additional complexity to an already complicated role. It’s no surprise, then, that plan fiduciaries may be counting a lot of sheep.

The best way to ensure a good night’s sleep is for plan fiduciaries to understand and fulfill their responsibilities under the Employee Retirement Income Security Act (ERISA) and the Department of Labor (DOL) by (1) abiding to a stringent fiduciary process and (2) partnering with a retirement plan investment advisor. Below is an overview of some of the items that should be addressed by plan fiduciaries. 

Understand ERISA and DOL Regulations

ERISA and the DOL establish the rules for fiduciaries. They require fiduciaries to perform duties in a prudent manner and for the exclusive benefit of participants. One of the rules, called “404(c),” can assist fiduciaries in reducing or eliminating liability for losses on participant-directed investments. Following 404(c) includes but is not limited to communicating with plan participants, allowing participants to have control over their investments, and providing investment diversification opportunities. We suggest all 401(k) plan fiduciaries review and ensure they understand their responsibilities under ERISA, DOL, and 404(c). 

Processes and Due Diligence

This begins with developing an Investment Policy Statement — a roadmap that defines the purpose of the plan, provides objective criteria for investment selection and monitoring, sets standards for measuring performance, outlines criteria for fund removal, determines the level of acceptable expenses, and sets other criteria for decision-making. Due diligence includes documentation of decisions including meeting minutes, periodic performance and benchmark reports, manager search documentation, and other written and back-up documents. 

Monitor and Select Investment Options

Even though participants may choose their investments, fiduciaries are still responsible for the options from which the participants make elections. Selecting investment options and then continuously monitoring performance, including replacing an investment manager with a more appropriate choice, are among the most important fiduciary responsibilities. This requires extreme due diligence, and fiduciaries have a duty to understand every investment option. For example, stable value funds that have historically been considered “safe” may need to be monitored more closely, as many insurance companies are struggling financially, and market-to-book value ratios have been declining. Moreover, many investment options have security lending policies of which plan fiduciaries may not be aware. 

Review and Benchmark Plan Expenses

It’s important that fiduciaries understand total fees, including those buried within investment products. For example, fees may be layered in group annuity products, different funds have different share classes with fees that may be higher than their institutional counterparts, and third parties can negotiate different revenue-sharing arrangements. It’s crucial to exercise caution here and have your retirement plan fees benchmarked. 

Partner With a Retirement Plan Investment Advisor

The world of retirement plans continues to evolve, making it increasingly difficult for plan fiduciaries to get a good night’s sleep. Given the heightened sensitivity to a plan fiduciary’s responsibilities, it’s never been more important to partner with a retirement plan investment advisor. Feel free to contact us for more information on your fiduciary responsibility.

About Plante Moran Financial Advisors (pmfa.com)
With more than $5 billion of assets under management and clients throughout the United States, Plante Moran Financial Advisors is the one of the nation’s largest independent registered investment advisors based on assets under management. Our integrated affiliate services include investment advisory services, financial planning, trust, insurance consulting, estate planning, business succession, tax planning, and institutional investment services.

Contact Us

Kimberly Little

877.622.2257, x23639

Susan Shoemaker

248-223-3722