Fiduciary Responsablities

[Brian Gallagher]

Does anyone know if it says anywhere in the codes that a plan and/or other fiduciaries have to review the investments in a plan?

All I can find is under ERISA 404(a) and © that the investments must be diversified and there must be at least three options with differing risk/return.

Any thoughts would be appreciated.

[QDROphile]

If the plan is designed to have particiapnts direct investments, generally two approaches are possible:

1) The participants may selelect from investments designated by the fiduciary. In that case, the fiduciary is responsible for designating reasonable investment options that provide an opportunity to diversify. See the ERISA section 404© regulations.

2) The participants are allowed to select investments without restriction, except for legal restictions and certain administrative restrictions because of feasibility. For example, a participant might be restricted to publicly traded securities.

The fiduciary is not responsible for evaluating how the participant is investing. The fiduciary is not reponsible for prudence or diversification of the participants investments, and should not get involved. If the fiduciary gerts involved, the fiduciary will undertake responsibility and the limit of that responsibility will be uncertain.

Allowing participants to have unrestricted investment authority brings in some issues on which there is disagreement.

If participants do not direct investments, the the fiduciary is responsible for all aspects of of investment. If the fiduciary delegates to an investment manager, the fiducicary must still monitor. If the invesment manager is not diversifying assets, the fiduciary may have to intervene.

[Brian Gallagher]

Say the plan investments, for simplicity's sake consist of the minimum three asset classes: Money Market/Stable class, Income class, and Growth class.

Also, say the income class is invested in the XYZ Bond Fund, and the growth class is invested in the XYZ Large Cap Fund and both are consistently in the bottom 10% for their classes.

Isn't it incumbent upon the fiduciaries to review the available fund lineup to make sure they are performing consistent with it's investment policy? (And the policy is not to invest in funds in the bottom 10% of the class). in this case, the participants do have investment direction over their funds.

Does it say so in the code (ERISIA, IRS, etc), or is it implied under the "prudent man" rule?

[four01kman]

My recollection of the standard duty of fiduciaries is, among other things, to monitor the appropriateness of the investments offered by the plan. Also, there is a rquirement, often overlooked, to have a statement of investment policy which could well specify the benchmarks and other measuring criteria.

[E as in ERISA]

Brian --

You are right. It is the "prudence" standard of ERISA Section 404 that requires that a fiduciary do what a prudent investor would do -- and that includes regularly reviewing the appropriateness of the investments. In a DOL audit, one of the first things they will ask for is copies of your quarterly benchmarking reports. Many large companies regularly review not only the investments but also the investment managers and advisors (often with the assistance of an independent third party).

[Demosthenes]

Brian

One of your posts stated "performing consistent with it's investment policy?" (emphasis added). From this I infer that the Trustees have created and adopted a formal policy to guide them in the selection of investments. Investment Policy's generally address the frequency and timing of the reviews.

Is there an investment policy as part of the trust and does it address the review timing?

[Jon Chambers]

In their booklet on 401(k) fees for employees, the Department of Labor advises that employers have a duty to:

1) Establish a prudent process for selecting investment alternatives and service providers

2) Ensure that fees paid to service providers are reasonable in light of the level and quality of services provided

3) Select investment alternatives that are prudent and adequately diversified

4) Monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices

This fourth item is what you are probably looking for.

[Guest rmeigs]

Here are a couple of items from two well respected law firms that might be of help:

http://www.swlaw.com/publications/files/TR...dardsTo401k.pdf

http://www.reish.com/publications//article...m?ARTICLEID=228