1. Formalize Oversight with a Dedicated Committee
One of the strongest defenses against fiduciary claims is demonstrating a structured, systematic approach to plan management. Establish a formal retirement plan committee with a clear charter, defined roles, regular meeting schedules, and ongoing training for its members. This dedicated team should:
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Review investment performance quarterly, diligently benchmarking against objective criteria.
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Document thorough fee comparisons against peer plans to ensure competitiveness.
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Track key participant outcomes, such as deferral rates and diversification, to assess plan effectiveness.
Why it works: Courts often dismiss claims when plan sponsors can demonstrate consistent and systematic oversight. For instance, NYU successfully avoided liability by proving they followed "a prudent, though not perfect" process.
2. Document Every Decision Relentlessly
Your paper trail is your first and best line of defense. Create an exhaustive audit trail for all fiduciary actions. This includes:
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Detailed rationale for investment selection or replacement, explaining why certain funds (e.g., index funds over actively managed options) were chosen.
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Comprehensive records of fee negotiations and periodic service provider reviews.
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Documentation of corrections for any operational errors, like late deferral remittances.
Critical insight: As experts often warn, "Failure to follow your Investment Policy Statement (IPS) can expose you to greater risk than not having one." Store all records indefinitely—they are indispensable in the event of audits or lawsuits.
3. Benchmark Fees and Investments Annually
Cost and performance are constant targets for litigation. Annually compare your plan's administrative costs and fund menu against industry peers using independent data sources (like BrightScope or publicly available Form 5500 filings). Focus on:
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Administrative fees: Verify that recordkeeping costs are aligned with your plan's size and the services received.
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Investment expenses: Be prepared to replace consistently underperforming funds and avoid an over-reliance on proprietary options that could present conflicts of interest.
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Revenue sharing: Scrutinize any indirect compensation arrangements to prevent potential conflicts of interest.
4. Transfer Risk Through Strategic Outsourcing
While ultimate responsibility remains, you can significantly mitigate your personal liability by strategically outsourcing certain functions and securing proper coverage:
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Hiring a qualified 3(38) or 3(21) investment advisor:
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A 3(38) investment manager assumes full discretionary authority over investment selection, monitoring, and replacement, thereby taking on primary fiduciary responsibility for the plan's investments. This offers the highest level of risk transfer in the investment arena.
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A 3(21) investment advisor acts as a co-fiduciary, providing advice and recommendations on investment options, but the ultimate decision-making authority (and thus, primary fiduciary responsibility) remains with the plan sponsor. While less of a direct risk transfer than a 3(38), a 3(21) advisor still provides expert guidance that can significantly strengthen your investment oversight process.
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Purchasing fiduciary liability insurance to cover legal defense costs and settlements.
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Engaging an independent auditor for compliance reviews.
Reality check: While 70% of current litigation targets plans with over $1 billion in assets, smaller plans are by no means immune. Proactive risk transfer is essential for everyone.
5. Enforce Ironclad Plan Governance
Operational failures are low-hanging fruit for plaintiff attorneys. Eliminate these vulnerabilities by ensuring robust internal governance:
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Align payroll practices precisely with plan-defined compensation, especially for elements like bonus deferrals.
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Automate processes for loan defaults and forfeiture allocations to prevent common document violations.
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Distribute Summary of Material Modifications (SMMs) within 210 days of any plan changes, as required.
Compliance imperative: The Department of Labor's (DOL) "as soon as administratively possible" rule for deferral deposits means within days, not weeks. Swift and accurate operations are non-negotiable.
The Bottom Line
Fiduciary lawsuits are not a fleeting trend; they are an evolving reality. Plans that diligently institutionalize these five practices transform vulnerability into vigilance. Remember: your greatest shield isn't perfection; it's provable prudence. As one court affirmed, "The test is how a fiduciary acted, not whether their actions succeeded."
Start building your defense today—before a plaintiff's attorney forces you to.
"In fiduciary law, process isn't paperwork—it's armor."
For more information and personalized guidance, please feel free to reach out to Vistamark Investments LLC. You can contact us at
312-895-3001, visit our website at
www.vistamarkllc.com, or send us an email to
info@vistamarkllc.com.
