The Shifting Sands in 401(k) Plan Management

Is Investment Performance a Fiduciary Responsibility?

Executives who serve on committees that monitor retirement plans qualified under the Employee Retirement Income Security Act ("ERISA") rely on the protection it offers for those who can show they manage investment decisions using a "prudent process." ?Scores of fiduciary breach lawsuits filed over the last several years focus their allegations on the defendants' failures to follow such a process.?A new trend is unfolding. Recent cases go beyond the process issue and strike directly at the performance of specific investment options offered by retirement plans.

For instance, members of a retirement plan sponsored by Cumulus Media, Inc. filed a class action lawsuit (Dean v. Cumulus Media, Inc.), alleging the plan's fiduciaries had breached their duty as a result of subpar investment performance. ?The lawsuit alleges that the fiduciaries (1) maintained certain funds in the plan despite the availability of identical or similar investment options with lower costs and (2) maintained certain funds in the plan despite failing to objectively and adequately review the plan's investment portfolio with due care to ensure that each investment option was prudent in terms of cost.

A Sea Change is in the Making

Has a new avenue opened for plan participants to obtain compensation from their retirement plans??The outcome of the Cumulus Media case will likely establish a precedent on which future litigation will turn.?Its plaintiffs' attempt at bypassing ERISA's prudent process concept may have far-reaching consequences for employers and members of fiduciary committees.?How should investment and retirement plan committees respond?

Practical Tips

An ancient proverb in today's vernacular says, "A prudent person sees trouble coming and ducks; a simpleton walks in blindly and is clobbered."?Now is the time to act.

Here are practical tips for executives who serve as primary fiduciaries on ERISA-qualified defined contribution plans.

• Be sure monitoring procedures frequently analyze the share classes of investment funds.
• Review the plan’s investments frequently, quarterly is best.
• Document the review process thoroughly.
• Annually obtain an investment risk assessment from an ERISA risk management expert.