Fiduciary Responsibility for Plan Investments.

Fiduciary Trust Building
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A key fiduciary responsibility for participant-directed plans is the prudent selection and monitoring of plan investments. The Preamble to the final ERISA Section 404(c) regulation explains:

The act of designating investment alternatives … is a fiduciary function…. All of the fiduciary provisions of ERISA remain applicable to both the initial designation of investment alternatives and investment managers and the ongoing determination that such alternatives and managers remain suitable and prudent investment alternatives for the plan. Therefore, the particular plan fiduciaries responsible for performing these functions must do so in accordance with ERISA.

As the Preamble further explains “… the plan fiduciary has a fiduciary obligation to prudently select such vehicles [for example, mutual funds], as well as a residual fiduciary obligation to periodically evaluate the performance of such vehicles to determine, based on that evaluation, whether the vehicles should continue to be available as participant investment options.”

ERISA Section 404(a) requires that fiduciaries performing such duties act “for the exclusive purpose of providing benefits” and that they manage their plan’s investments in accordance with the “prudent man rule.” Under the prudent man rule, fiduciaries must use “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” In the context of participant-directed plans, this means that the standard is that of a hypothetical person who is knowledgeable about selecting investments for participants to direct for the purpose of accumulating retirement benefits. For this reason, it is sometimes referred to as the “prudent expert rule.” To satisfy that standard, fiduciaries should engage in both substantive and procedural prudence. That is, they should determine what information is material and relevant to their decision; gather, examine, and understand that information; and then make an informed decision based on their findings. [See, e.g., DOL Reg. § 2550.404a-1, “Investment Duties.”]

Please comment or call to discuss what your responsibilities are.

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