Global Retirement Plan Innovation - Dimensional Fund Advisors

LegAL UPDAte
MAnAGInG FIDUCIArY
reSPOnSIBILItY
How plan fiduciaries can enlist the help of an investment advisor
By IAn KOPeLMAn, Partner at DLA Piper LLP (US) and PSCA’s Legal Counsel
Pitfalls await 401(k)
plan fiduciaries who
assume that, under
the employee
retirement Income
Security Act of 1974
(erISA), they can
eliminate their potential liability
with respect to the plan’s
investment options by retaining an
outside investment advisor. the
facts: erISA plan fiduciaries (e.g.,
the sponsor, a committee, or
another in-house fiduciary) are
never fully relieved of fiduciary
responsibility, even when an advisor
assumes that responsibility for the
investment of plan assets. However,
retaining an outside advisor can
help plan fiduciaries fulfill their
responsibilities under erISA.
A plan fiduciary has the duty to act:
(1) solely in the interest of
participants and beneficiaries and
(2) for the exclusive purpose of
benefiting participants and
beneficiaries, and defraying
reasonable expenses of
administering the plan. Further,
under erISA’s prudent man
standards, fiduciaries must
discharge their duties with “the
care, skill, prudence, and diligence
under the circumstances then
prevailing that a prudent man
acting in a like capacity and familiar
with such matters would use in the
conduct of an enterprise of a like
character and with like aims.”
translation: All fiduciary actions are
measured against what someone
who knows the area would do
under the same circumstances. If a
plan fiduciary does not know the
area, prudence requires the
fiduciary to get help from someone
who does. Decisions concerning
the investment options offered to
plan participants are one area in
which prudence may require the
fiduciary to get expert help.
Many plan fiduciaries are officers or
other employees of the plan sponsor
whose primary responsibilities do not
require investment expertise. In other
words, unlike an investment advisor,
the average plan fiduciary is not a
specialist in portfolio theory, financial
analysis, or investment management
and probably does not have the time
to become one. An informed
decision about the investment
options offered to plan participants
requires an analysis of information
such as past performance and
returns, fund volatility, fund
managers, turnover, and fees. this
process requires both time and
expertise, which can be in short
supply for the plan’s fiduciaries. An
“ It may be advisable to get expert
help—and it may be required.”
— Ian Kopelman,
PSCA’s Legal Counsel
advisor has greater and faster access
to relevant information regarding the
plan’s investment options. As a result,
an advisor’s analysis is likely to be
more exact, and the investment
options that are eventually selected
may be more in line with the
investment goals of the plan and
participants. thus, it may be
advisable to get expert help, and
according to Department of Labor
regulations, it is actually required:
“Unless they possess the necessary
expertise . . . fiduciaries would need
6 DC DIMenSIOnS