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The Importance of Regular Monitoring and Evaluation of 401(k) Plan Investments

Published on by Harold Kremer in Benefit Plan Audits

The Importance of Regular Monitoring and Evaluation of 401(k) Plan Investments

Do you serve as a plan administrator for your company’s 401(k) or 403(b) plan? If so, you may already be aware of your responsibilities related to selecting investment alternatives to be offered to the participants in your plan. A recent Supreme Court ruling has shed some light on the importance of regularly monitoring those investment alternatives.

On May 18, 2015, the United States Supreme Court, in a unanimous decision, held that employers have a continuing fiduciary duty to review and evaluate the investment options offered within their retirement plans.  This particular case involved a 401(k) plan, but the ruling affects any qualified retirement plan with participant-directed investments.

In this case (Tibble v. Edison International) participants sued the plan sponsor, claiming that the sponsor breached its fiduciary duty under Employee Retirement Income Security Act of 1974 (ERISA) with respect to investment options offered under the Plan.  The specific claim relates to six retail-class mutual funds that were added to the Edison International 401(k) Plan in 1999 and 2002 that were higher priced (i.e. higher administrative fees) than materially identical institutional-class mutual funds.

The Supreme Court stated in its opinion that: “ERISA’s fiduciary duty is derived from the common law of trusts, which provides that a trustee has a continuing duty – separate and apart from the duty to exercise prudence in selecting investments at the outset – to monitor, and remove  imprudent trust investments.”

As a result of this decision, we recommend that plan sponsors establish a policy to regularly review investment options offered to participants. If during the review, any investment options are no longer considered prudent, the plan sponsor should remove that option from the plan. If you are interested in learning more about reviewing your investment options, contact a Barnes Dennig representative here.

Barnes Dennig is hosting a seminar titled “What Plan Sponsors Need to be Talking About,” during which we will cover evolving plan regulations, hot topics, and much more. For more information, or to register for the seminar, visit our website here.

If you are interested in learning more about this issue, you can access the entire case here: Supreme Court case no. 13-550.


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