In recent years, several high-profile
class-action lawsuits have alleged that plan fiduciaries violated their
fiduciary duty to prudently select and monitor the investment options offered
in their retirement plans. Because
employers want to avoid litigation, which could result in personal liability
for investment committee members, many plan sponsors are seeking ways to manage
the risks associated with serving as an ERISA fiduciary, and, specifically,
ways to help mitigate the risks that arise from selecting and monitoring their
plan’s investment lineup.
Fiduciary investment risk
mitigation strategies range from taking a “do-ityourself” approach to hiring an
independent investment management fiduciary to choose and monitor the plan’s
investments without input from the plan sponsor. While it is common to hire an
investment manager for defined benefit pension plans, only recently have
defined contribution (DC) plan sponsors considered this approach.
All decisions related to
selecting and monitoring plan investments are fiduciary acts, generally subject
to ERISA’s fiduciary duties. Such acts include the decision to hire a consultant,
an investment advisor, or an investment manager, or the decision to oversee the
plan investments without the assistance of such professionals. Plan sponsors
should carefully consider the advantages and drawbacks of each approach to
managing plan investments. While plan sponsors and participants can benefit
from a third-party investment professional’s expertise and perspective, plan
sponsors must understand which fiduciary responsibilities they retain when they
hire an outside consultant or advisor.
In a recent report, the Vanguard Strategic Retirement
Consulting team discusses the different approaches DC plan sponsors can take to
avoid or limit potential fiduciary breach claims relating to the investment
options they offer in their plans. Click
for the full report.