Recent court cases can provide valuable insights for employers sponsoring a defined contribution plan like 401(k)s and 403(b)s not just to avoid liability but to better manage plans. While smaller employers are less likely to be targeted by lawsuits, it doesn’t mean they should not be prudent in following the law most of which will result in a better retirement plan.
An RIA in Chicago provides a brief and simple review of lessons learned from lawsuits which include:
- Employers must put the best interests of their plan participants first especially when it comes to the selection and monitoring of:
- Investments
- Service providers like record keepers and advisors
- All fees
- Mutual Fund Share Classes – Costs for the same fund can vary widely due to fees above and beyond the cost to manage the money reflected in the various share classes. Those fees typically pay commissions (12(b)(1)) and administrative costs (sub transfer agency or sub TA). The more money invested, the lower cost share class available. Employers have a duty to get the best deal for their plan and participants.
- Continuing duty to monitor – Investments must be continually monitored. There’s liability for a fund that was ok 5 years ago but is no longer suitable.
- Plan Expenses – Just because most employers don’t write a check (and especially so), there’s a duty to monitor those expenses on behalf of employees.
A recent settlement by a record keeper with participants in their plans over alleged high fees for proprietary funds shows that plan sponsors should be extra careful to review the funds managed by their service provider. Overall, plans are getting it as record keeping expenses have dropped by 46% over the past 10 years while the use of company stock in DC plans has also decreased.
