- Does Your Retirement Plan Fiduciary Monitor Your Plan Investments?
- May 25, 2015 | Authors: Antoinette M. Pilzner; Dale R. Vlasek; John M. Wirtshafter
- Law Firms: McDonald Hopkins LLC - Bloomfield Hills Office ; McDonald Hopkins LLC - Cleveland Office
- U.S. Supreme Court confirms that fiduciaries have an ongoing duty to review and monitor plan investments
In its May 18, 2015, decision in Tibble v. Edison International (Tibble), the U.S. Supreme Court confirmed that the fiduciaries of a retirement plan have an ongoing duty to review the appropriateness of investment options offered to plan participants.
The Legal Question
The legal issue in question was whether plan fiduciaries could be sued for breach of fiduciary duty for retaining investment options that were initially selected by the fiduciaries more than six years before the Tibble participants began their legal action. This narrow procedural question addressed the statute of limitations applicable to the breach of a fiduciary’s duty under the Employee Retirement Income Security Act of 1974 (ERISA).
In reaching its decision, the Supreme Court analyzed a plan fiduciary’s duty under ERISA to prudently invest the assets of the plan. In doing so, the Supreme Court highlighted the distinction between the duty to initially select an investment and the ongoing duty to monitor the suitability and appropriateness of plan investments over time. The effect of the decision is to confirm there is a continuing duty to review plan investment options after they are initially offered to plan participants.
The Impact - Documentation
Make sure your plan’s fiduciaries are conducting periodic reviews to determine whether your plan investment options are still appropriate in light of the diversity, performance and fees of those options. In addition, the Department of Labor’s (DOL) intense scrutiny of the fees paid by plans strongly suggests a periodic review of the appropriateness of all fees paid with plan assets. Investment professionals and experienced ERISA counsel can provide significant assistance during this review process. The review should start with a well-crafted investment policy statement that establishes the criteria for the review.
In conducting your review, it is critical that you document the process and the decisions made.
The plan’s fiduciaries should record minutes of all their meetings and retain the information used to make the decision of whether to retain or replace investment options. The same is true of reviewing the fees paid by the plan. The DOL routinely requests information about trustee meetings, fee review and procedures when it audits 401(k) plans and other plans with participant-directed investments.
If the plan’s fiduciaries don’t currently have written review processes and procedures, it’s best to work with ERISA counsel and the plan’s investment professionals to create and implement them. If it’s been a while since the plan’s investment options have been reviewed, the plan’s fiduciaries should promptly perform a review and develop and implement a recurring review schedule. These periodic reviews should be conducted annually at a minimum; however, many investment professionals recommend reviewing investment option performance on a semi-annual or quarterly basis.
The Supreme Court left open for now a description of what the ERISA fiduciary duty of ongoing monitoring requires. Nonetheless, plan fiduciaries should be reviewing their processes and procedures for monitoring plan investment options. Once that guidance is issued, you should review your processes and procedures again to ensure they are in compliance. What Tibble made clear is that “set it and forget it” is not an acceptable approach.
The confirmation that a plan fiduciary has an ongoing duty to monitor investment options should not come as a surprise to fiduciaries and their advisors. The Tibble case started in 2007 and in the intervening eight years the investment responsibilities of ERISA fiduciaries have evolved to include ongoing monitoring as a fiduciary best practice.
The Employee Benefits Practice Group is available to answer questions and assist with developing policies and procedures for monitoring plan investment options.
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