Failing One’s Duty to Monitor

Any employer offering a qualified retirement plan like a 401(k) has a duty to monitor the plan, including the plan fees and the performance of the funds in the plan lineup.

That does not mean that those who oversee the plan can be sued for underperformance as such. But, when funds remain in the lineup that consistently underperform relevant indexes and similar funds it can be viewed by regulators and judges as a sign that proper monitoring is not being done. That can cost money, embarrassment, employee morale and time spent with attorneys.

I just read about another lawsuit getting sent along for trial for just that reason.

When I look at fund lineups I routinely find funds with poor track records. I also find index funds that have cheaper alternatives. These are good ways to get into trouble.

Often I find that no meeting minutes are being taken, maybe no meetings even being held, or that the minutes don’t document a process of recognizing a fund’s underperformance, discussing it and giving solid reasons why it should remain in the plan or not. Why would a judge or regulator conclude that the employer had done a good job of oversight? There’s no evidence of it. This is serious business.

I also talk to CFOs and CEOs, doctors and dentists and such that don’t know what their fees are or how they compare with similar plans. This is negligence that can cost them. Plan participants are relying on them to fulfill their fiduciary duties to keep expenses reasonable and to provide good investment options that are at least competitive. But, those duties are being neglected. Don’t think that a judge won’t take that seriously because you don’t have a mega-size plan.

Please make sure you do regular benchmarking of your costs and keep meeting minutes that detail a solid oversight process. If you don’t have a formal oversight process, you are really asking for trouble, whether your plan is $1 million or $100 million.

This is part of what I do for plans. Don’t get yourself in trouble. Have me talk with you about how to get on track and stay out of serious trouble.

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