Implement prudent procedures
Top 10 ways to reduce your fiduciary liability #1
This is a good opportunity to talk about how ERISA defines prudence. ERISA raises the standard level of prudence to mean that every fiduciary-level decision must be supported by a documented process of an expert in the area of the issue.
This is why it is rare to find a retirement plan that does not have a qualified investment co-fiduciary advisor. It is often helpful if the advisor is also a retirement plan specialist because the committee will likely also be making decisions about plan design, fee benchmarking, interpreting participant behavior, and other routine plan management decisions—areas that may be subject to the same prudent standard.
- Procedural prudence is the ERISA term for the process fiduciaries are expected to use for any fiduciary-level decision-making. This process involves making sure fiduciaries:
- Identify the issue, such as an underperforming investment
- Become knowledgeable on the subject or hire a specialist
- Determine course of action in best interest of participants, such as removing and replacing the underperforming investment
- Take action; that is, in this example, remove the investment
- Document process and actions in meeting minutes
- Review the decision periodically to confirm that the decision remains prudent