In almost all breach of fiduciary cases, the plan trustees fail to follow a prudent process.
The US Department of Labor, in their Field Assistance Bulletin 2015-02, outlined six basic obligations a fiduciary must consider when selecting and monitoring investments including:
- Engage in an objective, thorough and analytical search,
- Avoid self-dealing, conflicts of interest, or other improper influence,
- Consider the risk associated with the investment versus alternatives,
- Consider ALL costs in relationship to services provided,
- Ensure the investment is diversified to minimize the risk of large losses, and
- Consult with experts when that expertise is lacking.
Once in conformance with best practices, a plan sponsor MUST continually monitor the plan’s conformance with the best practices. Failure to do so can result in significant fines and legal expenses. (Thanks to our friends at The Wagner Law Firm for their help)