5 Fiduciary Resolutions for 2025

This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are five for plan fiduciaries for 2025.

1. Develop a (plan) budget.

Most financially-focused New Year’s Resolutions focus on spending (less) or saving (more) —and the really thoughtful ones do both — all tied around the development of a budget that aligns what we have to spend with what we actually spend.

I expect that most, or at least many, plans also have a budget when it comes to the expenditures that require corporate funding.  Less clear is how many establish some kind of budget when it comes to what participants have to spend.  Now, granted, what they pay will vary based on any number of …variables — but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much — and for what.

At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharing, and the availability of alternative share classes (or options like CITs) — but it also means having an awareness not only of the plan features, but the usage rates of those plan features.

Let’s face it - when it comes to retirement plans, there often IS a direct link between spending less and saving more.

2. Check-up—on your target-date fund(s).

Flows to target-date funds (TDF) have continued to be strong — and little wonder, what with their positioning as the qualified default investment alternative (QDIA) of choice for most 401(k)s. That said, the vast majority of those assets are still under the purview of an incredibly small number of firms — with glidepaths that are not nearly as dissimilar as their marketing materials might suggest.

A TDF is, of course, a plan investment, and like any plan investment, if it fails to pass muster, a plan fiduciary would certainly want to remedy that situation, including removing the fund if necessary (don’t take my word for it — that’s coming straight from the Labor Department). 

That said, TDFs are frequently, if not always, pitched (and likely bought) as a package. While each fund in the family is reviewed separately, and certainly should be, breaking up the set certainly carries with it a series of complicated consequences, not the least of which are participant communication issues and glide path compatibility. Not that those can’t be overcome — and not that those complications would be deemed sufficient to retain an inappropriate investment on the plan menu — but it doesn’t take much imagination to think about the heartburn that might cause.  However, and once again – the Labor Department has suggested that action might be appropriate.

The reasons cited behind TDF selection run a predictable gamut; price/fees, performance (past, of course, despite those disclaimers), platform (as in, it happens either to be their recordkeepers, or compatible with their program) — and doubtless some are actually doing so based on an objective evaluation of the TDF’s suitability for their plan and employee demographics.

Whatever your rationale, it’s likely that things have changed — with the TDF’s designs, the markets, your plan, your workforce, or all of the above – oh, and there might now be a more personalized managed account option. 

The time to consider a change is before you are forced to do so.

3. Pump up - the default rate in your auto-enrollment plan.

While a growing number of employers are auto-enrolling workers in their 401(k) plan (likely even more with the new provisions in SECURE 2.0), one is inclined to assume that nearly two decades after the passage of the Pension Protection Act, if a plan hasn’t done so by now, they likely have some very specific reasons.

But for those who have already embraced automatic enrollment, those are plans who have (apparently) overcome the range of objections; concerns about paternalism, administrative issues, cost — some may even have heard that fixing problems with automatic enrollment can be — well, problematic (though things have gotten a little easier on that front).

There has been movement here over the year s— indeed the most recent PSCA survey found that half of the plans with automatic enrollment set the default deferral rate high enough so that participants receive the full possible company matching contribution (another 10% set it above that rate). More than a third now have a default rate of 6% - or higher!

4. Set goals for your plan (designs).

The mantra about retirement benefits has always been that they exist to help attract and retain good workers. More recently, a reimagined emphasis on financial wellness has offered some nuance to that — to provide better levels of engagement while they are working, to forestall the “distractions” (and potential malfeasance) that financial stress can engender, and ultimately to help workers retire “on time.” These goals are not inherently incompatible, but at any given point in time they require differences in communication, education, emphasis, and potentially program design. 

There is, by the way, a sense of a shift in such things. While the primary goal of participant education has historically been to increase participation rates, the Plan Sponsor Council of America’s 67th Annual Survey of Profit-Sharing and 401(k) plans notes that in 2023 that shifted to increasing financial literacy of employees — cited by 83.6%, and cited as the top priority for more than a third of survey respondents. 

If you haven’t revisited those objectives in a while — or, heaven forbid, have never done so — there’s no time like the present for a reset. After all, as Yogi Berra once commented, “If you don’t know where you’re going, you might wind up someplace else.”

5. Do your homework

Whether you lead a plan committee – or are “just” part of one – it’s important to be prepared.  ERISA requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are SOLELY in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters.  Even if you (just) serve on a plan committee, you are also held to that standard.  Legally, you have personal financial responsibility for those decisions – and that motivation alone should provide the requisite focus on preparation. 

That said, ERISA does not require that you make those decisions by yourself—and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it. 

But you’ll help them – and help yourself – and help the plan participants – if you do your homework BEFORE the committee meeting.

• Nevin E. Adams, JD

Independence 'Gaze'

A week from today the nation will celebrate Independence Day—though of course independence didn’t actually occur on July 4.

Let’s face it, the Declaration of Independence[i] was little more than that—a declaration. One that had yet to be backed by anything beyond the artfully crafted and narrow consensus of a handful of delegates appointed by a wide variety of means and mechanisms, with correspondingly disparate levels of responsibility and accountability for their alignment with the principles outlined in that document. 

As practically meaningless as that declaration might have been, we commemorate and celebrate those actions because, eventually, events transpired that made those aspirations a reality. But it came only after years of hard-fought fighting, and while we don’t often talk about this, it ultimately divided the nation between those who wanted to be free from what they viewed as tyranny—and those who viewed those actions and aspirations as nothing less than treason.

That said, the deliberations that produced that declaration are in many ways emblematic for how groups—including retirement plan committees—move forward—though it’s important to keep these things in mind:

Inertia is a powerful force.

By the time the Second Continental Congress convened, the “shot heard round the world” had already been fired at Lexington, but many of the representatives in Philadelphia still held out hope for some kind of peaceful reconciliation. Little wonder that, even in the midst of hostilities, there was a strong inclination on the part of several key individuals to put things back the way they had been, to patch them over, rather than to take on the world’s most accomplished military force (not to mention putting their own lives and fortunes at risk).

Indeed, as human beings we are largely predisposed to leave things the way they are, rather than making abrupt and dramatic change. Whether this “inertia” comes from a fear of the unknown, a certain laziness about the extra work that might be required, or a fear that advocating change suggests an admission that there was something “wrong” before, it seems fair to say that plan fiduciaries are, generally speaking, and in the absence of a compelling reason for change, inclined to rationalize staying put.

Little wonder that we often see new fund options added, while old and unsatisfactory funds linger on the plan menu, a general hesitation to undertake an evaluation of long-standing providers in the absence of severe service problems, and a reluctance to adopt potentially disruptive (and, admittedly, sometimes expensive) plan features like automatic enrollment, deferral acceleration, or more recently—retirement income.

While many of the delegates to the Constitutional Convention were restricted by the entities that appointed them in terms of how they could vote on the issues presented, plan fiduciaries are bound by a higher obligation—that their decisions be made solely in the best interests of plan participants and their beneficiaries—regardless of any other organizational or personal obligations they may have outside their committee role.

Consensus can be hard to achieve.

The Second Continental Congress was comprised of representatives from what amounted to 13 different governments, with delegates selected by processes ranging from extralegal conventions, ad hoc committees, to elected assemblies—with varying degrees of voting authority granted to them, to boot. Needless to say, that made reaching consensus even more complicated than under “ordinary” circumstances.

Today the process of putting together an investment or plan committee runs the gamut—everything from simply extrapolating roles from an organization chart to a random assortment of individuals to a thoughtful consideration of individuals and their qualifications to act as a plan fiduciary. But if you want a good result, you need to have the right individuals—and they should be aligned around a singular purpose—decisions made with the exclusive purpose of the best interests of plan participants and beneficiaries.

It’s important to put it in writing.

Before the delegates at the Second Continental Congress were united in purpose, there was a sense by those favoring independence that putting those thoughts in writing would help crystalize, as well as formalize, that proposition. And while the Declaration of Independence technically had no legal effect, putting that declaration—and the sentiments expressed—in writing gave it a force and influence far beyond its original purpose. It also provided a focus for the debate and discussion of those delegates—and an opportunity to tweak and shape those thoughts to be in alignment with the whole group.

There is an old ERISA adage that says, “Prudence is process.” However, an updated version of that adage might be “prudence is process—but only if you can prove it.” To that end, a written record of the activities of plan committee(s) is an essential ingredient not only in validating the results, but also the thought process behind those deliberations (not to mention that there WAS a thought process behind those deliberations). More significantly, those minutes can provide committee members—both past and future—with a sense of the environment at the time decisions were made, the alternatives presented and the rationale offered for each, as well as what those decisions were. 

Those might not serve to inspire future generations—but they can be an invaluable tool in (re)assessing those decisions at the appropriate time(s) in the future and making adjustments as warranted—properly documented, of course.

You can delegate authority—but not responsibility.

When it came to drafting the declaration itself, there was an acknowledgement that some delegates were better writers than others. But while the primary responsibility for the draft fell to Thomas Jefferson, he was teamed with several other key individuals to help assure that the draft took into account the sensibilities of the entire delegation—and even then, when presented there were additional edits.

Ultimately, however, the responsibility for the declaration fell to all the delegates. As Ben Franklin is said to have commented just before signing the Declaration, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

It’s not quite that serious for ERISA plan fiduciaries. However, there is the matter of personal liability—not only for your actions, but for those of your fellow fiduciaries—and thus, you might be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. So, it’s a good idea not only to know who your co-fiduciaries are—but to keep an eye on what they do, and are not only permitted, but expected, to do.

Actions can speak louder than words.

As dramatic and inspiring as the words of the Declaration of Independence surely were (and are), if they never got beyond the document in which they appeared, it’s unlikely we’d be talking about them today. Indeed, it’s likely that, without the actions committed to in that Declaration, their signatures on the document would have only ensured that they wound up on the gallows, rather than the history books.

Anyone who has ever had a grand idea shackled to the deliberations of a moribund committee, or who has had to kowtow to the sensibilities of a recalcitrant compliance department, can empathize with the process that ultimately produced the Declaration of Independence we’ll commemorate next week.

Yes, Independence Day is a great opportunity to reflect and recall that our actions have consequence(s)—and that while plan committee meetings and deliberations may sometimes seem like little more than obligatory (and tedious) reviews of arcane information, it’s worth remembering that those decisions affect people’s lives—and, ultimately, their financial independence.

- Nevin E. Adams, JD

 

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[i] Ironically, despite the celebrations on the 4th, the resolution that declared that “these United Colonies are, and of right, ought to be, Free and Independent States” was approved by the Continental Congress on July 2. In fact, only President of Congress John Hancock and Charles Thomson, secretary, signed it on the 4th (the former famously in a hand “large enough for King George to read without his spectacles”). Most of the 56 delegates didn’t sign it for another month. One didn’t sign until 1781.

 

5 Plan Committee Missteps

There is frequently a difference between doing what the law requires and doing everything that you could do as a plan fiduciary. That said, there are things that plan fiduciaries must do—and things that, while not required, can keep the plan, and plan fiduciaries out of trouble.

Let’s get started.

1. Not having a plan/plan investment committee

ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. ERISA does not require that you make those decisions by yourself—and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it. 

You may well possess the requisite expertise to make those decisions—and then again, you may not. But even if you do, why forego the assistance of other perspectives?

However, having a committee for having a committee’s sake can not only hinder your decisions— it can result in bad decisions. Make sure your committee members add value to the process. (Hint: Once they discover that ERISA has a personal liability clause, casual participants generally drop out quickly.)

2. Not HAVING committee meetings

Having a committee and not having committee meetings is potentially worse than not having a committee at all. In the latter case, at least you ostensibly know who is supposed to be making the decisions. But if there is a group charged with overseeing the activities of the plan, and that group doesn’t convene, then one might well assume that the plan is not being properly managed, or that the plan’s activities and providers are not prudently managed and monitored, as the law requires.

3. Not keeping minutes of committee meetings

There is an old ERISA adage that says “prudence is process.” However, an updated version of that adage might be “prudence is process—but only if you can prove it.” To that end, a written record of the activities of your plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations. 

More significantly, those minutes can provide committee members—both past and future—with a sense of the environment at the time decisions were made, the alternatives presented, and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted—properly documented, of course.

4. Not having an investment policy statement

While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement, the reality is that the law does not require one, and thus, many plan sponsors—sometimes at direction of legal counsel—choose not to put one in place. Of course, if the law does not specifically require a written investment policy statement (IPS)—think of it as investment guidelines for the plan—ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, you should find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing, and not crafted at a point in time when you are desperately trying to make sense of the markets. In sum, you want an IPS in place before you need an IPS in place. 

It is worth noting that, though it is not legally required, Labor Department auditors routinely ask for a copy of the plan’s IPS as one of their first requests. And therein lies the rationale behind the counsel of some in the legal profession to forgo having a formal IPS; because if there is one thing worse than not having an investment policy statement, it is having an investment policy statement—in writing—that is not followed.

5. Not removing ‘bad’ funds from your plan menu

Whether or not you have an official IPS, you are expected to conduct a review of the plan’s investment options as though you do. Sooner or later, that review will turn up a fund (or two) that no longer meets the criteria established for the plan. That’s when you will find the true “mettle” of your investment policy; do you have the discipline to do the right thing and drop the fund(s), or will you succumb to the very human temptation to leave it on the menu (though perhaps discouraging or even preventing future investment)? Oh, and make no mistake—there will be someone with a balance in that fund. Still, how can leaving an inappropriate fund on your menu—and allowing participants to invest in it—be a good thing?

Being a plan fiduciary is a tough job—and one that, it’s probably fair to say—is underappreciated, if not undercompensated. Despite that, in my experience, most who find themselves in that role I think do an admirable job of living up to the spirit, if not the letter, of their responsibilities.

If you’re taking the time to read this, odds are you are probably doing a better-than-average job as a plan fiduciary (or at least the person who shared it with you is). I hope you find this list informative, and that you draw insight and comfort from its contents, as well as a reminder of the awesome responsibilities of an ERISA plan fiduciary.

- Nevin E. Adams, JD

5 Plan Committee Lessons from the Second Continental Congress

As we prepare to celebrate the Declaration that marks the birth of this nation, it seems a good time to reflect on some lessons from that experience that hold true even today.

Inertia is a powerful force.

By the time the Second Continental Congress convened, the “shot heard round the world” had already been fired at Lexington, but many of the representatives in Philadelphia still held out hope for some kind of peaceful reconciliation. Little wonder that, even in the midst of hostilities, there was a strong inclination on the part of several key individuals to put things back the way they had been, to patch them over, rather than to take on the world’s most accomplished military force.

As human beings we are largely predisposed to leave things the way they are, rather than making abrupt and dramatic change. Whether this “inertia” comes from a fear of the unknown, a certain laziness about the extra work that might be required, or a sense that advocating change suggests an admission that there was something “wrong” before, it seems fair to say that plan sponsors are, generally speaking, and in the absence of a compelling reason for change, inclined to rationalize staying put.

Little wonder that we often see new fund options added, while old and unsatisfactory funds linger on the plan menu, a general hesitation to undertake an evaluation of long-standing providers in the absence of severe service issues, and reluctance to adopt potentially disruptive (and, admittedly, often expensive) plan features like automatic enrollment or deferral acceleration.

While many of the delegates to the Constitutional Convention were restricted by the entities that appointed them in terms of how they could vote on the issues presented, plan fiduciaries are bound by a higher obligation – that their decisions be made solely in the best interests of plan participants and their beneficiaries – regardless of any other organizational or personal obligations they may have outside their committee role.

Selection of committee members is crucial.

The Second Continental Congress was comprised of representatives from what amounted to 13 different governments, with delegates selected by processes ranging from extralegal conventions, ad hoc committees, to elected assemblies – with varying degrees of voting authority granted to them, to boot. Needless to say, that made reaching consensus even more complicated than under “ordinary” circumstances.

Today the process of putting together an investment or plan committee runs the gamut – everything from simply extrapolating roles from an organization chart to a random assortment of individuals to a thoughtful consideration of individuals and their qualifications to act as a plan fiduciary. But if you want a good result, you need to have the right individuals – and, certainly in the case of ERISA fiduciaries, if those individuals lack the requisite knowledge on a particular issue, they need to access that expertise from individuals who do.

Know that there are risks.

The men that gathered in Philadelphia that summer of 1776 came from all walks of life, but it seems fair to say that most had something to lose by signing on to a declaration of independence. True, many were merchants (some wealthy, including President of Congress John Hancock), and perhaps they could see a day when their actions would accrue to their economic benefit. Still, they could hardly have undertaken that declaration of independence without a very real concern that in so doing they might well have signed their death warrants. As Ben Franklin is said to have commented just before signing the Declaration, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

It’s not quite that serious for ERISA plan fiduciaries. However, there is the matter of personal liability – not only for your actions, but for those of your fellow fiduciaries – and thus, you might be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. So, it’s a good idea not only to know who your co-fiduciaries are – but to keep an eye on what they do, and are permitted to do.

It’s important to put it in writing.

While the Declaration of Independence technically had no legal effect, with the possible exception of the Gettysburg Address (which was heavily inspired by the former), its impact not only on the establishment of the United States, but as a social and political inspiration for many throughout the world is unquestioned, and perhaps unprecedented. Putting that declaration – and the sentiments expressed – in writing gave it a force and influence far beyond its original purpose.

Plan fiduciaries are sometimes cautioned (often by legal counsel) about committing to writing certain decisions, notably an investment policy statement. In fairness, the law does not require one, though ERISA basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing – rather than being crafted at a point in time when you are desperately trying to make sense of the markets. That said, and in the defense of caution, if there’s something worse than not having an IPS, it’s having an IPS that isn’t followed.

There is an old ERISA adage that says, “Prudence is process.” However, an updated version of that adage might be “prudence is process – but only if you can prove it.” To that end, a written record of the activities of plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations. More significantly, those minutes can provide committee members – both past and future – with a sense of the environment at the time decisions were made, the alternatives presented and the rationale offered for each, as well as what those decisions were.

Those might not serve to inspire future generations – but they can be an invaluable tool in reassessing those decisions at the appropriate time(s) in the future and making adjustments as warranted – properly documented, of course.

Actions can speak louder than words.

As dramatic and inspiring as the words of the Declaration of Independence surely were (and are), if they never got beyond the document in which they appeared, it’s unlikely we’d be talking about them today. Indeed, it’s likely that, without the actions committed to in that Declaration, their signatures on the document would have only ensured that they wound up on the gallows.

Anyone who has ever had a grand idea shackled to the deliberations of a moribund committee, or who has had to kowtow to the sensibilities of a recalcitrant compliance department, can empathize with the process that produced the Declaration of Independence we’ll commemorate this week.

While plan committee meetings may sometimes seem like little more than obligatory (and tedious) reviews of arcane information, it’s worth remembering that those decisions affect people’s lives – and, ultimately, their financial independence.

- Nevin E. Adams, JD

5 Things Plan Sponsors Don’t (Always) Do — But Should

There is frequently a difference between doing all that the law requires of a plan sponsor and doing everything that could be done.

Here are five things that plan sponsors don’t always do — but should.

1. Have a Plan/Plan Investment Committee.

ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. ERISA does not require that you make those decisions by yourself — and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it.

However, having a committee for having a committee’s sake can not only hinder your decisions — it can result in bad decisions. Make sure your committee members add value to the process. (Hint: Once they discover that ERISA has a personal liability clause, casual participants generally drop out quickly.)

2. Keep Minutes of Committee Meetings.

There is an old ERISA adage that says “prudence is process.” However, an updated version of that adage might be “prudence is process — but only if you can prove it.” To that end, a written record of the activities of the plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations.

More significantly, those minutes can provide committee members — both past and future — with a sense of the environment at the time decisions were made, the alternatives presented, and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted — properly documented, of course.

3. Have an Investment Policy Statement.

While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement, the reality is that the law does not require one, and thus, many plan sponsors — sometimes at the direction of legal counsel — choose not to put one in place. Of course, if the law does not specifically require a written investment policy statement (IPS) — think of it as investment guidelines for the plan — ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) will find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing, and not crafted at a point in time when you are desperately trying to make sense of the markets. In sum, you want an IPS in place before you need an IPS in place.

It is worth noting that, though it is not legally required, Labor Department auditors routinely ask for a copy of the plan’s IPS as one of their first requests. And therein lies the rationale behind the counsel of some in the legal profession to forego having a formal IPS; because if there is one thing worse than not having an investment policy statement, it is having an investment policy statement — in writing — that is not followed.

4. Remove ‘Bad’ Funds from the Plan Menu.

Whether or not the plan has an official investment policy statement (IPS), plan sponsors are expected to conduct a review of the plan’s investment options as though they do. Sooner or later, that review will turn up a fund (or two) that no longer meets the criteria established for the plan. That’s when you will find the true “mettle” of the investment policy; will the plan sponsor/committee have the discipline to do the right thing and drop the fund(s), or will they succumb to the very human temptation to leave it on the menu (though perhaps discouraging or even preventing future investment)? Oh, and make no mistake — there will be someone with money in that fund. Maybe even a senior executive. Still, how can leaving an inappropriate fund on your menu — and allowing participants to invest in it — be a good thing?

5. Monitor Providers on a Regular Basis.

In some sense, we all “monitor” the performance of our plan provider all the time. Is the website available when people try to access it? Do checks and statements arrive on time? Are the balances displayed accurate? The reality is that, for most of us, no news is seen as “good” news. After all, if the answer to any of the foregoing questions was “no,” we’d not only know about it, we’d be complaining about it (after fending off our own set of complaining phone calls). Plan sponsors have a very full-time job dealing with a myriad of things that are “broken” — why go looking for trouble?

At least once a year — no matter how well things are going — it’s worth determining if your plan has access to the new services that have come online since you converted; that you are getting the advantages of the most current thinking about costs and fees; and how your plan’s participation, deferral, and asset diversification stack up. And yes, even with a reliable provider, you may have to ask.

Beyond that, every three to five years (sooner if there are problems, of course), plan sponsors should go through a formal request for information (RFI) or request for proposal (RFP) process—on your own, or with the help of an adviser (who undoubtedly has more experience with such things).

Two other things to keep in mind: First, if you are a fiduciary, and you feel that you lack the expertise to make those decisions, you will of course want — and, in fact, are expected — to hire someone with that professional knowledge to help.

Secondly, while fiduciaries are often reminded of the things they shouldn’t do, recent litigation trends suggest that they’re just as likely to get sued (if not more so) for failing to do something they should be.

- Nevin E. Adams, JD

3 Things Every Plan Committee Member Should Know

Plan investment committee members come in all shapes and sizes, sometimes drawn exclusively from staff of the employer sponsoring the plan, sometimes not. More importantly, they are frequently tapped for this important role for reasons that may have little to do with their background or expertise in the matters that will come before the committee.

Now, with luck they’ll learn early on about 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.

But as important as those considerations are, there are some important things that every plan committee member should know before they sit down at their first committee meeting.

You are an ERISA fiduciary. Even as a small and relatively silent member of the committee, you’ll direct and influence retirement plan money — and it’s that influence over the plan’s assets that makes you an ERISA fiduciary.

As an ERISA fiduciary, your liability is personal. How personal? Well, you may be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. 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.


Having established those basics, 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 diversify 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 additional points on fulfilling those duties; it’s going to be hard to follow the terms of the plan documents if you haven’t read them, and it’s likely to be difficult to ensure that the plan pays only reasonable expenses if you don’t know what the plan is paying, or for what.

And finally, should you, as a plan fiduciary lack the expertise to carry out those duties, you will, of course, want to hire someone with that professional knowledge to carry out the investment and other functions.

Additional information on fiduciary responsibilities can be found here.

- Nevin E. Adams, JD

Change Parse

Three things every adviser (and provider) wishes plan sponsors understood about recordkeeping conversions:

Everybody wants to change providers on January 1. Everybody can’t.

If your plan year end is December 31 (and it is, for the vast majority of plans), there are some real benefits to making a provider change at that point in time. Plan reporting—both participant and regulatory (Form 5500)—is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal—but it can be “awkward.”

There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be-ex provider likely will as well—and guess who is likely to get the most/best attention?

Bear in mind also that a 1/1 change means that a lot of the preparation, review, and/or testing—not to mention participant communications—will happen during a time of the year when people are generally more inclined to be worrying about other things.


Your provider search will take longer than you think.

Human beings are, generally speaking, poor judges of time requirements, particularly on things they don’t have a lot experience with (like provider searches) and that require the involvement/input of committees (like provider searches). We tend to assume that we’ll have more time available for such things than actually winds up being the case, and we tend to assume that such things will take less time than they actually do. We also tend to make those types of assumptions about the participation of other members of the team. It’s not just that those assumptions tend to be optimistic, it’s that, all too frequently, they are wildly optimistic.

Your provider and/or adviser will likely make a good faith effort to provide a timetable of events, and will likely take pains to emphasize to you the amount of time it will take to actually conduct this process. Doubtless they will remind you—and remind you more than once—just how important it is that you make the time commitment—and deadlines—noted in that timetable.

My advice: Take whatever timetable they give you—and double it.

A big part of the reason your provider search will take longer than you think…is you.

Conversions generally involve providers—both new and soon-to-be-ex—and frequently involve an adviser in addition to the members of the employer team. Every one of these parties is, generally speaking, highly motivated to see the conversion take place. Now, one could argue that you, the plan sponsor, who set all this in motion, has as much motivation as anyone. However, the reality is that, unless you have some SERIOUS servicing issues, your motivation for change is probably somewhat less than the others.

Change, after all, is generally disruptive. A change of providers inevitably brings with it additional work, greater time commitments, and what sometimes feels like an incessant series of questions about things to which you never previously gave much thought. Moreover, you’ll have to think about how to communicate this change to your participants—and deal with the inevitable flurry of questions from THEM about how to do things to which THEY never previously gave much thought.

However, these realities are generally not top of mind when we enter into discussions about making a provider change. So, while the search is generally set forth on a wave of optimism and hope, it can, before long, find itself bogged down in the inevitable administrative minutia that consumes so much of a plan sponsor’s time. And the longer it takes, the worse it can become.


So, considering those issues, what should a plan sponsor thinking about making a provider change do? Well, I would suggest you start early, allow plenty of time for slippage in schedule, and be open to the possibility of making a mid-year change instead.

—Nevin E. Adams, JD