Commentary: On Monday, May 18, 2015, the U.S. Supreme Court ruled that employers are required to monitor their investment fund line-ups and remove inappropriate investment offerings. The Court went on to say this is a duty apart from the selection process and then sent the case back to a lower court to consider other related questions.
Although legal experts are unanimously proclaiming that the Court's ruling will significantly expand 401(k) plan litigation, I find it hard to see how that could be the case. Since the release of the final Department of Labor 408(b)(2) fee disclosure regulations in 2012, the plan sponsor community has done an exemplary job monitoring the costs of funds offered in their 401(k) plans.
Not only did these regulations focus employers and their advisors on investment option cost, they also pointed out the importance of fiduciary compliance. Nearly all plan sponsors now realize that failing to monitor their investment options is a clear fiduciary breach.
Another outcome of the fee disclosure regulations is that nearly all plan sponsors now work with competent investment advisors who have signed on to their plan's as fiduciaries. These advisors have spent a significant amount of time educating their clients about fiduciary compliance and responsibility. As a result, whether plan sponsors have large or small 401(k) plans, the vast majority are doing an excellent job monitoring their investment funds from both a cost and fiduciary standpoint.
There are likely few if any changes in employer practices or procedures that will result from the Court's ruling since the Court did nothing more than state a well accepted principal of fiduciary compliance. If there are to be any further, noteworthy changes to the plan administrative environment as a result of Tibble, they will be coming from the lower court review.
Robert C. Lawton, AIF, CRPS is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at email@example.com or 414.828.4015.
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