When researching on the Internet for a blog post, I ran across an article published in Pensions and Investments in November of 2009. Richard Glass, the author, laid out some steps for plan fiduciaries to minimize the likelihood of successful lawsuits against them.
For small to mid sized companies, (less than several hundred participants) the likelihood may be perceived as very low since there are not big numbers involved to attract an ERISA attorney to take a case. However, since the LaRue v. DeWolff Supreme court ruling, that is changing.
Whatever the real risk, Robert Khuzami, director of the SEC’s enforcement division said ”It’s better to be in the prevention business than the cleanup business.”
Plan sponsors fall into two groups. The first group is those that really want to do the best for their employees. The second operate the 401(k) and profit sharing to play the tax game. Regardless of the plan sponsor motivation, an ounce of prevention is worth a pound of cure.
Mr. Glass points included:
- Employees should be reminded regularly that past performance of a fund is not a good indicator of future returns and that they need to monitor their accounts with regularity.
- Plan sponsor must be aware of, monitor and justify the plan fees.
- Plan fiduciaries should provide annual retirement income replacement assessments so the participants will know if they are on track. They should look at different employee segments such as age and should include suggestions as to contributions.
- Plan sponsors should acknowledge that picking actively managed funds could be compared to shooting craps. This is reflected in the DOL proposed rules of March 2010.
- Target Date Funds (TDF) can vary dramatically from fund family to the next as was demonstrated in the markets of 2007-2009. Plan fiduciaries must be able to justify how they arrived at their choice. Morningstar recently published a white paper and found that the TDF’s from ING, John Hancock, Principle and Mass Mutual were the worst performers in their analysis.
Read the complete article by Richard Glass: “Conventional wisdom, fiduciary duty and 401(k)s”