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Fiduciary Rules and Practices

5 Things of Which Plan Fiduciaries Need to Be Aware

Whoever said ignorance was bliss surely wasn’t talking about fiduciary litigation.

While I’ve had the opportunity over the past decade and change to peruse plenty of filings and findings related to excessive fee suits, the recent amended filing in a case against New York University (NYU) included something new — a long list of statements and acknowledgements by plan fiduciaries that, according to the plaintiffs, “displayed an alarming lack of understanding of basic terms and principles in investment management and fiduciary best practices.” Indeed, one of the plan committee members was called out for their “remarkable unawareness of basic facts” relating to the plan.

Now, one must take care in accepting the assertions in litigation at face value, and it’s too early to say if they — along with a response by the defendants — will carry the day with a judge. Still, it’s hard, more than a decade after the first of the so-called excessive fee cases were filed, to believe that there remain multi-billion dollar retirement plans in operation with committees — and as here, with the involvement of an investment advisor — well, the things that the long-standing practices of these committees suggest are still in place.

The job of a plan fiduciary isn’t all about fees, of course, though it’s certainly been a focus of these excessive fee lawsuits. Still, it seems to me that there are some things that plan fiduciaries of any plan size should be aware, and of which responsible plan fiduciaries should have a working knowledge.

Said another way, a plan fiduciary could be in trouble if you don’t:

  • Know how much your plan pays in fees. And to whom. And for what.
  • Know how many (and which ones) of your plan’s investment choices are offered in retail class shares. And if institutional class shares are available, and under what circumstances/conditions.
  • Know how much of your plan’s investments are in funds that belong to your recordkeeper. And why.
  • Know what revenue-sharing is (and where it goes).
  • Have a basis for determining that the fees paid by the plan/participants are “reasonable.”

That’s not an exhaustive list, of course though, at least with regard to fees and expenses, I think it covers the key issues, certainly the ones that have arisen in litigation. Remember that plan fiduciaries — who have personal liability for their actions — are charged with “paying only reasonable plan expenses.” And, as noted above, plan fiduciaries — and those who guide them — have had at least a decade to see the writing on the wall on these excessive fee lawsuits.

Arguably, that can’t be done without first knowing what those expenses are, and having some basis of comparison/evaluation to ascertain if they are, in fact, reasonable in view of the services provided.

Particularly if you don’t want to be caught “unawares.”