Plan Fiduciaries — The Best Offense is Not a De Facto Defense. When it comes to being a workplace retirement plan fiduciary, the best defense is a good offense. That said, if your fiduciary plays are more about keeping yourself out of hot legal water than they are about doing what’s in your participants’ best interests, even your best defense may not be good enough.
401k Fridays Podcast host and Forbes retirement plan contributor Rick Unser recently wrote about this. He uses some primo sports metaphors that I’m just not equipped to replicate, and for that reason alone, his article is worth a read. For those who don’t have time for the play by play, here are the highlights.
Unser presents three commonly accepted fiduciary defense “best practices,” but he actually suggests spending less time and effort on those in favor of three additional tactics he offers to build a solid fiduciary offense. Ultimately, however, Unser recommends plan fiduciaries strike a balance between both defensive and offensive practices.
First, the defense:
RFP every three: It’s a commonly held belief that you need to conduct an RFP every three years for your retirement plan providers. However, to date, no court has held a fiduciary liable for conducting an RFP every three years. While Unser doesn’t condone letting a bad provider relationship persist, basically if it ain’t broke, don’t fix it. If you’re only putting your providers out to bid every three years because as a fiduciary you believe you’re “supposed to,” consider spending your time on other endeavors, Unser advises.
Low fees will set you free: Many employers believe that having low fees in their retirement plan will keep them off the fiduciary hot seat. Not necessarily, Unser warns. Making a decision based on fees alone, without considering the needs of your participants or the goals of your plan is not wise — and it’s not good fiduciary behavior. Low-fee proprietary funds are not always “better.” And remember, you get what you pay for. As Unser puts it,”When retirement plan fiduciaries make decisions on fees to reduce their chances of being sued, that hurts everyone.”
Rating game: The volatility we’ve witnessed so far this year following a prolonged bull market has investors on edge. It’s also messing with investment committees’ evaluation criteria. But hold up — before you decide to replace a fund just because it’s now on your committee’s watchlist, take a breather and converse with your investment consultant about the risk of your current option vs. a replacement. To quote Unser again: “Be careful you don’t replace quality long-term investments that have taken less risk during the bull market with ones that have experienced more recent success with higher levels of risk.”
Now, the offense, where Unser suggests fiduciaries focus more of their attention and time:
Low Return Environment: Major stock and bond indices have modest return projections for the coming decade. So consider options for your investment menu that diversify away from the major indices. Unser mentions there are multi-asset options, where a single strategy can solve for inflationary risk, and offer exposure to non-traditional asset classes, along with different risk profiles than those traditionally found in most 401(k) plans.
Income is the Outcome: Employees want — and need — help to convert their retirement plan savings into income. If you think your employees would benefit from an option to help them do that, take initiative and check it out. It may not be as big a fiduciary leap as you think, says Unser.
Settlor Options: Fiduciary fears have caused some sponsors to shy away from design innovations that can help improve retirement outcomes. However, plan design features such as automatic enrollment and auto escalation, matching formulas and other offerings intended to help improve retirement readiness are not fiduciary decisions. Your retirement plan providers can help you make the most of modern plan design options without feeling like you’re falling on a fiduciary sword. Talk to them about what’s available and how you can best leverage the options for your plan and participants.
Unser concludes his article with this proactive tip: Review your fiduciary process. Are you playing too much defense? If so, it’s time to switch tactics and move to a better offensive position. Doing so will help you improve participant outcomes and be a better fiduciary by doing what’s truly in their best interest, rather than doing only what you think will keep you out of legal trouble. And that’s a winning strategy for everyone.
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