United States

Tibble confirms onus on employers for retirement plan fund monitoring

Strategies to keep in mind as a plan fiduciary


A recent U.S. Supreme Court ruling may have an impact on employers who offer retirement defined contribution plans, which includes 401(k) plans. The case fortifies the idea that continuous retirement plan monitoring and removal of imprudent investments is a critical duty of all investment fiduciaries and those that fail to do so could face costly litigation.

In the unanimous ruling of Tibble v. Edison International, 135 S. Ct. 1823 (2015), the Supreme Court held that Employee Retirement Income Security Act (ERISA) fiduciaries responsible for the selection of plan investment choices have an ongoing duty to monitor those investment options (that is separate and apart from the duty to exercise prudence in selecting investments at the outset). Further, a current plan committee can be found liable for breach of fiduciary duty in connection with funds that were initially selected many years earlier by different committee members.

The case was based on the plaintiff’s contention that costlier funds were chosen for their retirement plan where identical and lower-cost funds were also an option. This, according to the Supreme Court, was a breach of the plan sponsor’s fiduciary duty to continuously monitor and weigh options. For employers that already have processes in place to provide continuous monitoring and risk mitigation this may mean nothing new. However, many, particularly small- and midsize organizations, may be challenged to meet this new expectation to continuously “mind the store” of investment options within the plan. For those companies, here are some important steps and strategies to keep in mind as a plan fiduciary:

  1. Establish an investment committee to review the current retirement plan and documents. Make sure roles are established and education is provided for committee members around their ERISA fiduciary responsibilities.
  2. Establish an investment policy statement (IPS). This establishes benchmarks, expectations, objectives and guidelines for selected investments within the retirement plan portfolio.
  3. Establish an ongoing review of funds and vendors to assure selections are aligned with the IPS. Vendor fees and other service providers under the plan should be reviewed, too. Quarterly committee meetings are frequently most effective to gather and evaluate plan elements.
  4. Document rationale and decisions related to fund selections and changes. If questions are asked years later why fund choices were made, the documentation is key to establish the logic behind the decisions.
  5. Remember that investment option monitoring does not mean selection of funds at the lowest cost. While price is important to weigh, selection of the appropriate investment based on your plan needs is also key, as well as fund performance weighed against your overall IPS objectives.
  6. Revisit the IPS annually to update as needed. Market shifts and risk adversity changes happen. The IPS should be modified to reflect those fluctuations.
  7. If your company engages a consultant to assist with fiduciary responsibilities, make sure that professional is independent and not affiliated with fund providers. You will benefit from objective counsel, someone who is mindful of your unique objectives established in your IPS.

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