Fiduciary Risk Management....Crossing T's & Dotting I's

As a Retirement Committee are you taking care of fiduciary basics?


Fiduciary risk can change over time as courts opine on new class action lawsuits and the DOL alters enforcement efforts.  The media also plays a part, stirring participants into action.  What does your Committee focus on when you meet?  What fiduciary efforts are undertaken by your Committee outside of these meetings to mitigate risk? 

Many Committees spend the vast majority of their meeting time wringing their hands over a few underperforming investments.  While monitoring investments in your plan is an important fiduciary function, it really is not an area of high risk.  If you are  meeting regularly and follow a prudent written process for investment monitoring…that is 90% of the battle.  Discussing the merits of an underperforming fund or two for most of your meeting is a time trap and leaves little time for other topics.  Make a decision and move on to the real areas of risk!


Participant Pays Provider Expenses = Fiduciary Risk

Is revenue sharing from the investments used to compensate your recordkeeper, investment advisor or auditor?  Even if you attempt to eliminate revenue sharing by using the lowest price share classes, there is going to be some revenue sharing that is paid in most situations.  If it’s not returned to the participants and is retained by providers as compensation, you have a very serious obligation to determine the reasonableness of those fees participants are paying.  Here’s some steps to take...

Independent Benchmarking – It’s the prudent way to determine reasonableness.  Going to market periodically through or using a benchmarking service is highly recommended.  If you are not equipped to do it (most are not), find an independent third party to help you as it will add tremendous value (and often will lower your fees).  You are legally required to address fee reasonableness each year by the DOL in response to your service provider’s 408(b)(2) fee disclosure.  Hopefully your Committee reviews the 408(b)(2) disclosures in your meetings and everything is documented in minutes (including the process you used to determine reasonableness).

Fee Policy Statement – A must for all fiduciaries.  The Fee Policy Statement documents how participants pay for the plan services (revenue sharing or direct from the plan) and the methodology (fixed per head, asset-based or both).  It also outlines your approach to revenue sharing (does it go back to participants, is it used to pay fees, is it “levelized” so all participants pay the same revenue sharing rate).  Lastly it discusses the process for monitoring the receipt of revenue sharing (are you receiving the amount you should be receiving).  If you are not discussing and documenting your approach….the fiduciaries are at risk.  The majority of successful lawsuits have focused exclusively on fiduciaries asleep at the wheel when it comes to fee reasonableness and share class utilization.  


Ongoing Co-Fiduciary Oversight....Often Overlooked

Many fiduciaries hire an investment advisor with much fanfare.  Detailed RFPs, finalist presentations, reference checks, background and contract reviews....all done with tremendous diligence.  But does the due diligence continue or does it fall by the wayside?  Over time, things change….the consultant representative changes or their securities affiliation changes.  As a result, you should annually be checking the status of your investment advisory firm and representatives to ensure active registration status and review complaints.  Are there issues that you should investigate?  Are they appropriately registered?  This information is readily available with a quick visit to where you can download a report to review this activity.  Also, make sure you review the annual form ADV disclosures that your advisor is required to provide each year.  This sounds routine, but many Committees do not take these simple but very important steps on behalf of the plan participants who in most cases are paying for the advisor’s services.


Fiducia Group is available to help you review your fiduciary processes and improve outcomes for your plan participants.  If you have questions about your fee methodology or annual disclosures you receive and how to act on them, please contact us. 

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