Liability Driven?

Having recently had a couple of new members join our 401(k) investment committee, I asked our investment adviser to conduct a briefing so that the new members – and those already serving on the committee – would have a better understanding of the responsibilities of being on that committee.

Most of that session focused on what was expected of them: the requirement to act solely in the interests of plan participants and beneficiaries, the importance of process (and documenting that process), and the implications of the prudent expert rule.

However, aside from the obvious motivations in helping my co-fiduciaries know what was expected of them1, at the conclusion of our session, I tried to summarize for our committee three things I think every investment committee member should know—and that, IMHO, kept top of mind, serve to keep an appropriate focus on those responsibilities:

You are an ERISA fiduciary.

Even as a small and relatively silent member of the committee, you direct and influence retirement plan money. I’m not saying that some crafty attorney couldn’t cobble together some kind of legal or practice exclusion that would technically suffice to erect some kind of legal shield—but I suspect that even that would be readily penetrated by a court2.


As an ERISA fiduciary, your liability is personal.

You may be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. Now, you can obtain insurance to protect against that personal liability—but that’s probably not the fiduciary liability insurance you may already have in place, or the fidelity bond that is often carried to protect the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. If you’re not sure what you have, find out. Today.

You are responsible for the actions of other plan fiduciaries.

All fiduciaries have potential liability for the actions of their co-fiduciaries. For example, the Department of Labor notes that if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well. So, it’s a good idea to know who your co-fiduciaries are—and to keep an eye on what they do, and are permitted to do.


—Nevin E. Adams, JD

1 As an ERISA fiduciary, you are expected to act SOLELY in the interests of plan participants and their beneficiaries, and with the exclusive purpose of providing benefits to them; to carry out those duties prudently (and by prudent, it is intended that you be a prudent expert); to follow the terms of the plan documents (unless inconsistent with ERISA); to diversifying plan investments (specifically with an eye toward minimizing the risk of large investment losses to the plan); and to ensure that the plan pays only reasonable plan expenses for the services it engages.

A couple of points of clarification: IMHO you can’t follow the terms of the plan documents if you haven’t read them, nor can you ensure that the plan pays only reasonable expenses if you don’t know what the plan is paying, or for what.

2 IMHO, “you don’t have to be a fiduciary to be on the investment committee” should be added to the list of great lies—like “the check is in the mail….”

Thanks Giving

Thanksgiving has been called a “uniquely American” holiday, and one on which, IMHO, it is fitting to reflect on all we have to be thankful for.

Here's my list for 2010:

I’m thankful that the vast majority of plan sponsors continued to support their workplace retirement programs with the same match and options as they had in previous years—and that so many of those who had to cut back in 2009 made the commitment to restore some or all of it in 2010.

I’m thankful that participants, by and large, hung in there with their commitment to retirement savings, despite the lingering economic uncertainty. I’m especially thankful that many who saw their balances reduced by market volatility and, in some cases, a reduction in their employer match were willing and able to fill those gaps, in most cases by increasing their personal deferrals.

I’m thankful that most workers defaulted into retirement savings programs tend to remain there—and that there are mechanisms in place to help them save and invest better than they might otherwise.

I’m thankful for the time, cost, and effort employers expend each year on health-care coverage for their workforce—never more so than this year with the absorption and assimilation of requirements under the new health-care law.


I’m thankful that those who regulate our industry continue to seek the input of those in the industry—and that that input continues to be shared broadly in open forums. I’m thankful that so many in our industry take the time to provide that input.

I’m thankful that so many employers have remained committed to their defined benefit plans and—often despite media reporting to the contrary—continue to make serious, consistent efforts to meet funding requirements that are quite different than when most initially decided to offer these programs.

I’m thankful that plan sponsors will soon have better access to more information about the expenses paid by their plans—and optimistic that it won’t be as bad as some fear. I’m thankful that we’re no longer talking about whether fees should be disclosed to participants, and are now trying to figure out how to do it.

I’m thankful that a growing number of advisers—and the firms that employ them—are willing to accept responsibility as an ERISA fiduciary.

I’m thankful that the “plot” to kill the 401(k)…hasn’t…yet.

I’m thankful that we might—finally—be ready to have a national, adult conversation about retirement income and entitlement programs.

I’m thankful to be part of a growing company in an important industry at a critical time. I’m thankful to be able, in some small way, to make a difference on a daily basis.

I'm thankful for the warmth with which readers, both old and new, have embraced me, and the work we do here. I'm thankful for all of you who have supported—and I hope benefited from—our various conferences, designation program, and communications throughout the year. I’m thankful for the constant—and enthusiastic—support of our advertisers.

But most of all, I’m once again thankful for the unconditional love and patience of my family, the camaraderie of dear friends and colleagues, the opportunity to write and share these thoughts—and for the ongoing support and appreciation of readers like you.

Thank you!

"Sure" Things

In a very real sense, this has been a “rebuilding” year for many plan sponsors and participants: a time spent rebuilding account balances, resurrecting and/or reviving employer matching contributions, a time for shoring up participation rates, and—in some cases—restoring trust. The markets, overall, have been sympathetic to those causes, but in many respects, the still-soft economic trends doubtless weighed on the kinds of dramatic trend shifts that we have seen in recent years.

That said, only a quarter (24.9%) of some 6,000 plan sponsor respondents said that “all or nearly all” of their participants were deferring enough to take full advantage of the employer match, a reading that declines sharply with plan size. Additionally, participation rates were roughly flat with a year ago; with responding plans reporting a combined participation rate of 71.5%, compared with 72.3% a year ago. The median participation rate was also lower; 75.0% in 2010, compared with 78% in last year’s survey.

As for automatic enrollment, the 2010 trend line was mixed. While the overall adoption rate was slightly lower this year, there was a discernable uptick in adoption at the largest programs (62.7% in 2010, compared with 52.3% a year ago) and about a 10% increase in the number of mid-size and large programs—but small and micro plans showed no change at all. The overall pace of contribution acceleration—that process of providing for annual increases in the rate of deferral—slipped from a 15.5% adoption rate in 2009 to just one in 10 plans this year (though most of that decline came from the smallest plans). However, even the adoption rate at the largest plans was effectively flat from a year ago.


The number of plans not offering some form of financial/investment advice continued to shrink. In this year’s survey, fewer than one in four plan sponsors did not offer that support, though larger programs were more likely to eschew the option. Relying on a financial adviser outside the plan was the preference for 37.5% of this year’s respondents, though that option was significantly more appealing to micro and smaller employers. While there continued to be different trend lines in different market segments, there was a distinct and noticeable trend across market segments toward offering—and accepting—“help.”

But as I sorted through the results of our annual Defined Contribution Survey, the one thing that emerged as something of a theme across multiple categories was—a lack of clarity. Plan sponsor respondents—and I maintain that those who respond to our survey are some of the most knowledgeable and actively engaged in their responsibilities—expressed what I thought were relatively high levels of uncertainty around several key plan-design elements: fees, target-date glide paths, retirement-income offerings, the focus of their investment policy statements, and even the “best” option for a qualified default investment alternative (QDIA).

Now, that may simply be a reflection of the wide array of choices available, the pace of new product development, and the unsettling effects of volatile markets. In fact, it might even reflect a certain level of prudent humility on the part of serious plan fiduciaries, who are aware of just how much they don’t know in the midst of that change and turbulence and are willing to own up to that reality.

After all, as Mark Twain once said, “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”

—Nevin E. Adams, JD

“After” Thoughts

The morning after last week’s mid-term elections, a plan sponsor friend of mine called me up and asked me what I thought it all meant.

Still bleary-eyed from sitting up watching the returns pile in the night before, I immediately launched into what I felt was an insightful assessment of the mood of the electorate, the trends of various interest groups that had, at least according to exit polling, shifted allegiances since 2008, the influence of the Tea Party, and the historical context of the shifts.

After patiently listening to me ramble for several minutes, he finally interjected—“I mean, what does this mean for retirement plans.”

Well, IMHO, you can’t completely separate the two. By any measure, the results were historic; Democrats lost their so-called 60-vote “super majority” in the Senate and, more significantly, control of the House, and in numbers that outpaced 1994’s turnaround (though that election also gave Republicans control of the Senate). That will certainly slow, if not stop, the pace of legislative change coming out of Washington, and—based on the employers I have spoken with—that will almost certainly be a welcome respite.


Many are inclined to harken back to the 1994 elections as a harbinger, recalling that after that turnabout, then-President Clinton and the Republican Congress managed to come together on several key initiatives, even as the nation entered a period of relative peace and prosperity. However, aside from the fact that, IMHO, those perspectives ignore many differences in approach between the two presidencies, they also gloss over the fairly nasty political period that followed the 1994 elections. It was, after all, a period that led to a number of high-profile conflicts, duelling press conferences, and that infamous (and in my estimation, overhyped) government “shut-down.” In sum, things finally settled down (well, except perhaps for “tiffs” like a presidential impeachment), but there was a lot of venom and acrimony in evidence for an extended period after the election. I think it would be naïve to expect any less/better from the current players (though I’m willing to be wrong).

The bottom line is, the House can pass legislation, but the Senate’s not likely to go along with it—nor would ditto any legislation that might manage to emerge from the Senate seem to have much chance of getting past the House. And that’s without even having to contemplate the power of a Presidential veto (particularly since there are no “veto proof” majorities in sight).

It’s not that the mid-term elections won’t have any impact on retirement plans. I fully expect the debate about Social Security reform to re-emerge, and changes there, though not likely in the next two years, will of necessity at some point have a ripple effect through all our retirement planning assumptions. I wouldn’t expect to see much happen with that automatic IRA legislation, certainly not with its employer mandates intact.

That said, our industry doesn’t need legislation to keep things stirred up. We’ll be busy worrying about disclosing fees, helping plan sponsors (and participants) understand those disclosures, and pondering just exactly what a new definition of fiduciary might mean, while regulatory deliberations about 12(b)1 and target-date funds will also be on the radar screen, and perhaps even retirement income.

Indeed, the regulatory change already in motion seems more than adequate to keep plan sponsors, advisers, attorneys—and journalists—plenty busy trying to sort it all out. In sum, I anticipate a lot of noise, a fair amount of activity, and not much forward motion in Washington for the next couple of years—though I am not sure that is a bad thing.

As always, we’ll worry a lot about matters in Washington; but IMHO, what happens outside of Washington is, more often than not, what matters.

—Nevin E. Adams, JD