Client Alerts
March 28, 2024

Retirement Plans: How to Guard Against Fiduciary Liability

Stites & Harbison Client Alert, March 28, 2024

In recent years, we have seen more and more ERISA class action claims against retirement plan sponsors and committees for breach of fiduciary duty. In the past, such claims were generally only made against very large plans but we are starting to see claims against smaller plans. The primary allegation is often that the fiduciaries failed to seek the lowest fees available, or put another way, the fiduciaries were “asleep at the wheel.” By one report, 463 lawsuits have been filed over the last eight years claiming fiduciaries failed to obtain the lowest available fees.

Fiduciaries can minimize the risk of liability by taking the following actions:

  1. Conduct investment review meetings at least three times per year;
  2. Hire qualified outside investment advisors;
  3. Fully understand the breakdown of all plan expenses including any hidden fees;
  4. Continually push your investment advisors and service providers to inform you of the lowest and most competitive fees available;
  5. Adopt an Investment Policy Statement (but if adopted make sure it is followed); and
  6. Make sure plan investments are held in the least costly mutual fund share class available for that fund.

Also, be cognizant of the level of recordkeeping fees and any monies sent to the recordkeeper by a mutual fund. Fiduciaries should also periodically consider putting the plan out for bid through a request for proposal process.

While fund performance is undeniably important, courts are often reluctant to apply 20/20 hindsight in assessing claims of fiduciary breach where a fund performs poorly. Allowing a plan to pay excessive fees and costs is a much more objective standard and is much more likely to result in an adverse court judgement. Finally, fiduciaries should also be extremely vigilant in avoiding any type of conflict of interest or self-dealing situations. This includes a fiduciary receiving consideration for his/her own personal account from a plan service provider or leveraging plan assets for his/her own benefit.

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