EMPLOYEE BENEFITS AND ERISA
Can You Put Your Retirement Plan On Autopilot?
Consider a typical retirement plan sponsored by a private employer. The employer is a fiduciary to the plan, along with individual employees who serve as trustees or members of the plan’s investment or retirement committee. When the employer has an outside investment manager, are the employer’s in-house fiduciaries off the hook?
A recent federal district court decision, Perez v. WPN Corp, et al., elaborates on what in-house fiduciaries are required to do in exactly this situation. The lawsuit, originally filed in 2014 by the U.S. Department of Labor (DOL) following an audit, sought to correct fiduciary breaches by the plans' investment manager and plan administrator, which caused the plans to sustain losses and lost earnings in excess of $7 million. According to the press release from the U.S. DOL, “This case underscores the department's commitment to hold fiduciaries accountable when we believe they have failed to meet their obligation to protect plan assets.” In a June 2017 opinion denying a motion to dismiss, the court held that plan fiduciaries who appoint the investment manager are still responsible for “monitoring” the investment manager’s performance. This duty includes adopting routine monitoring procedures, following those procedures, reviewing the results of the monitoring procedures and, most important, taking any action required to correct any performance deficiencies of the investment manager.
So, whether you pick an investment advisor to act as a co-fiduciary, or an investment manager to make all the decisions on plan investments, in-house fiduciaries still need to review the conduct of these professionals and take action when necessary.
There are a number of steps you might take to protect plan fiduciaries from liability. One thing you might consider is engaging an investment advisor to act as a co-fiduciary along with the in-house staff responsible for the plan. But let’s say you take another step and engage an “investment manager” to take on all responsibility for plan investments. In this case, the hired investment manager actually makes all decisions about plan investment and, as a “discretionary” advisor, only notifies the employer afterwards as to specific investment transactions.
There’s no risk-free way to put your retirement plan on autopilot. Having quality service providers is a good idea but they cannot relieve you, your company, or your other in-house fiduciaries from all responsibility for investment and administrative decisions.
Some financial advisory firms charge extra to act as investment managers. You may find that the “extra protection” afforded by this arrangement is not really worth the additional expense.
Consider other alternatives to mitigate fiduciary liability. This may include steps like adopting a suitable investment policy statement or obtaining fiduciary insurance. For additional suggestions, contact an employee benefits attorney.