By Tara Fenner
Employee benefit plan fiduciaries have an ever expanding list of responsibilities when it comes to plan administration. The continual changes that impact employee benefit plans can create difficulty, and sometimes confusion, for fiduciaries in meeting their obligations for plan monitoring and review. One of the more common mistakes, failure to conduct ongoing investment monitoring, has become a hot topic in recent months. It is a plan fiduciary’s duty to review and monitor investments offered in the plan on an ongoing basis. This requirement was established in ERISA Section 404(c) which states there is no relief for a fiduciary from his or her duty to prudently select and monitor the investment products in a plan. A unanimous U.S. Supreme Court ruling on May 18, 2015 in the case of Tibble V. Edison International can serve as a reminder to plan fiduciaries that there is more work to be done beyond the initial investment selection process. Failure to continue this investment review process can result in potential liabilities for fiduciaries if plan investments are deemed to be unsuitable for the participants.
The following tips can be implemented to assist plan sponsors in meeting their fiduciary responsibilities with regard to investment monitoring.
Investment Policy Statement (IPS) – Plan sponsors should have a documented policy that would outline investment objectives, define the roles of those responsible for the Plan’s investments, describe the criteria and procedures for selecting investment options and investment managers and among several other items, describe ways to address investment options and investment managers that fail to satisfy established objectives. Such a policy should also address permitted investments, investment mix, and concentration, as well as provide for a method of reviewing, monitoring, and taking appropriate action with regard to the Plan’s overall investment returns.
Review Investment Performance – At least annually, fiduciaries should perform a detailed review of all investments offered under the plan to ensure they continue to conform to the criteria defined in the IPS. This review should include reviews of the investment performance metrics, fee and expense ratios, and discussion about the future inclusion of the investments in the plan. Many service providers can provide documentation on the individual investments to assist with this process. Investments that are deemed to be poorly performing or failing to follow the IPS guidelines, should be considered for placement on a watch list or replaced with a more appropriate option.
Document the Review – One of the most important steps in the evaluation process is the documentation of the items reviewed and the decisions made during the meeting. At a minimum, the review documentation should include the date of the review, the names of those involved (typically this would include those charged with overall plan governance), copies of documents reviewed, and the conclusions reached.
Notify Participants of Changes – If this review results in investment changes, a notice should be promptly provided to all plan participants to inform them of the impending changes to the investment options for the plan.