Many members of company retirement plan investment committees are not fully aware of the nature of their fiduciary responsibilities. Given a variety of well-publicized fiduciary breaches within the financial services industry, federal Department of Labor regulators as well as many state attorneys general are focusing on holding fiduciaries accountable, making the atmosphere hazardous and creating a climate of tension. For actual breaches of fiduciary duty, possible results include disciplinary actions, regulatory censure, civil fines, personal liability, and potential criminal charges.
There are three main areas for concern for many company 401(k) plans. These specifically include: not having an investment policy statement; not following the provisions of an investment policy statement when one exists; and not understanding or knowing what is contained in the governing plan documents. Failure to comply with their provisions–such as missing crucial filings mandated by these regulations–is a breach of fiduciary duty.
Because the Employee Retirement Income Security Act (ERISA) is very complex, it is important for investment committee members to understand how the various provisions apply to their specific plan. One of the most important considerations in governing a retirement plan is the selection of investment committee members. These members should represent all of the various constituencies involved with the plan, including executive management, investment professionals, service providers or administrators, and participants. Each member will be knowledgeable in a specific area, but all members are responsible for the proper administration and management of the plan under ERISA.
Each investment committee member needs to understand what his or her responsibility is and how this extends to not only the investments in the plan but also to fees and other operational aspects of the plan. As such, each committee member should undertake the responsibility to gain the necessary knowledge for them to satisfy their duties under ERISA. This education is available from a wide variety of sources, including investment-consulting firms, plan sponsors, broker/dealers, trust companies, and third party administrators, as well as from individual financial advisors or investment management firms. In fact, because serving as an investment committee member is so important, financial services firms may be likely to turn this into the next sales or marketing opportunity.
Something to Protect You
The fiduciary responsibility of investment committee members is not limited to the documents or the investments, or any other particular provision. Fiduciary compliance is a total process that looks to the management of the entire plan.
Some of the specific duties of investment committees include reviewing plan documents; adopting and implementing an investment policy statement; holding regular, periodic meetings where there is an ongoing review of all aspects of the plan including investment results, fees charged, participant activities, compliance review of investment advisors and documentation requirements; and assuring that filings are timely and accurate and that the plan is in overall compliance with ERISA and other DOL mandates. While funds and fees are a big part of fiduciary responsibility, perhaps the bigger issue is the actual administration of the plan and whether that administration is “fiduciarily” compliant and prudent in operations.