However, ERISA is silent on defining the characteristics of that standard.  It also fails to offer a safe harbor regarding this standard of care.

• Plan Sponsor fiduciaries who manage 401(k) plans face demanding ERISA and Sarbanes-Oxley (SOX) compliance requirements. SOX creates the potential for criminal penalties and sanctions for non-compliance.
• Regulatory authorities have increased the scope and depth of their audit activities.
• All too often, the vendors Plan Sponsors rely upon for advice are not fiduciaries. Therefore, they are legally allowed to represent their self-interest in doing business with the plan. Few Plan Sponsors have a system for identifying and assessing vendor self-interest.
• Serving as a guardian of Trust assets requires a multi-disciplinary skill set yet most fiduciaries fulfill their duties on a part-time basis.  This is no longer tenable but they don’t have the resources to solve the issues.

Having designed the first of its kind ERISA Fiduciary Governance Training (www.fei.org), we recognized that training, while very important, is not a solution to all plan management challenges faced by Plan Sponsors. We knew that a complete 401(k) plan solution which promotes the best interests of plan participants and protects plan fiduciaries from exposure to liability was needed.

Because we couldn’t find it, we built it.

Click here for more information on SummitPlan™

The Sarbanes-Oxley Act of 2002 (“SOX”) added new urgency for Plan Sponsors, particularly publicly-traded companies, to establish sound governance processes and to certify the internal controls of all items that impact financial statements, including retirement plans. Whereas in the past ERISA-related litigation has primarily been a civil matter, the application of SOX 404 requirements to ERISA plans now exposes ERISA fiduciaries to the potential of criminal sanctions and draconian fines.

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The bear market of 2000-2002, the collapse of Enron, other corporate scandals and the arrival of SOX have led the Plan Sponsor community to recognize that the risk of fiduciary liability has dramatically increased. As the cost of fiduciary liability insurance has increased by a factor of 3X within the past three years there is also financial incentive to take action to reduce exposure to liability. That liability is aggravated by three risks common in today’s retirement plans:

• Investment selection and monitoring inconsistent with a Prudent Expert standard of care
• Unidentified and unassessed service vendor conflicts of interest
• Ad Hoc Plan Sponsor Governance – (e.g. insufficient training, poorly documented procedures.)

What can Plan Sponsors do to limit the impact of these risks?

• The very language of ERISA speaks of prudent plan management process “…in the circumstances then prevailing…”.  As the capital markets environment has changed dramatically since 2000, Plan Sponsors can evaluate investment management services using multiple risk criteria rather than historical performance data.
• To limit the effects of vendor conflicts of interest on the retirement plan, Plan Sponsors need to understand who a fiduciary is, what is expected of a fiduciary and why fiduciary status is important to identify. By understanding how a vendor defines its business relationship to the plan and the self-interest that motivates the vendor, Plan Sponsors can fulfill their fiduciary responsibilities to a higher standard of care. The due diligence required to identify vendor self interest will be eye opening for most fiduciaries.  By its nature, that process and the results of it will also generate a more substantive fiduciary defense
• By establishing a system for fiduciary governance and closing the communication loop with the appointing fiduciaries, Plan Sponsors can fulfill their duties and build a solid fiduciary defense at the same time. Plaintiff’s counsel will be discouraged by the presence of documentation which illustrates this level of fiduciary attentiveness.

SummitPlan™ includes installation of these services. It allows Plan Sponsors to meet the challenge of providing best fiduciary practices and serving the best interests of the plan participants at the same time.

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