25 September 2018

Mitigating Fiduciary Liability In Defined Contribution Plans

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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 here for the full report.
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