September 27, 2016—Last year the Supreme Court of the United States (SCOTUS) convened to decide a landmark case: Tibble v. Edison. According to InvestmentNews,1 this was “the first 401(k) fee case to be heard by the U.S. Supreme Court.”
The case turned upon this question: does a company (and company personnel who manage retirement plans, otherwise known as fiduciaries or plan sponsors) breach their responsibilities under the federal Employee Retirement Income Security Act (ERISA) by not offering lower-cost mutual funds to retirement plan participants when identical lower-cost funds were available?
This case was decided in a solid 9-0 vote, indicating the Court’s strongly and uniformly-held stance on this issue. Their holding:2 Because a fiduciary normally has a continuing duty to monitor investments and remove imprudent ones, a plaintiff may allege that a fiduciary breached a duty of prudence by failing to properly monitor investments and remove imprudent ones. Such a claim is timely as long it is filed within six years of the alleged breach of continuing duty.
As you are likely aware, this case is just more than an isolated incident; it is a sign of the times. Over the past few decades – and gaining more momentum after the infamous 2008 crash – an increasingly entangled thicket of employer responsibilities has cropped up around retirement plans. For individual
employers, that thicket grows as their company grows, and the longer their plan goes without periodically ensuring their fees are reasonable. One way to know whether the fees on your plan are reasonable and competitive is by conducting a Request for Proposal (RFP) from various retirement plan service providers. Another is by conducting a comparative benchmark of your plan’s fees by utilizing the services of an independent financial advisor – something we at Alexandria Capital can easily perform. Regardless as to what process you choose, the most important thing from a liability standpoint is that you have a process that fits the above criteria, and that execution on that process is consistently documented. Thankfully, those who manage company retirement plans don’t have to navigate the thicket of fees and regulations alone. We at Alliant Wealth exist to make life easier for employers who offer retirement plans. As an independent Registered Investment Advisor® we put our clients’ interests ahead of our own. If you are interested in staying ahead of the curve regarding fee reasonableness, contact me via phone or email. We’d love to talk with you.