A Companion piece to The Plan Grader Podcast from MIRA.

1. FIDUCIARY FIRST AID KIT
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“UNLESS TRUSTEES POSSESS THE NECESSARY EXPERTISE TO MANAGE INVESTMENTS,
FIDUCIARIES WOULD NEED TO OBTAIN THE ADVICE OF A QUALIFIED, INDEPENDENT EXPERT.”
- U.S. DEPT. OF LABOR REGULATIONS § 2509.95-1(C)(6)

2. Table of Contents
1. You’re Hired—for what? 3
2. Why are we here? 4
3. Averages are ok. 5
4. Wagner law firm’s 404a-5 review. 6
5. SCOTUS
1. “systematically consider at regular intervals” 7
2. “Consider retaining advisors and other experts” 8
3. Ensure “members have been educated…” 9
6. 9th Circuit brings more clarity. 10
7. Don’t “Fail to Act” after we part. 11
8. Benchmarks explained in simple terms. 12
1. Investors moving into index-tracking funds. 13
2. Mean reverting managers. 14
3. Where’s the money going? 15
9. Fire “zero value-add” providers. 16
10.Acknowledge your “expert” status in writing. 17
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Topic Page

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4. Why receive a PlanGrader?
• 1) Save you many hours adhering to 29 CFR
2550.404a-5 and…
• 2) Prove to Travelers/Chubb you’ve met the:
“Fiduciary requirements for disclosure in
participant-directed individual account plans.”
• (iii) Benchmarks. For designated investment alternatives
with respect to which the return is not fixed, the name
and returns of an appropriate broad-based securities
market index over the 1-, 5-, and 10-calendar year
periods (or for the life of the alternative, if shorter)
comparable to the performance data periods provided
under paragraph (d)(1)(ii)(A) of this section, and which
is not administered by an affiliate of the investment
issuer, its investment adviser, or a principal
underwriter, unless the index is widely recognized and
used.
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5. Development source?
• Source: public 5500 filings and…
• “…a 1946 Supreme Court precedent that said
plaintiffs can rely on averages to determine
claims.”
• "U.S. top court rules against Tyson Foods in class action
case” Mar 22, 2016
• http://www.reuters.com/article/us-usa-court-tyson-foods-
idUSKCN0WO1Y1
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6. This meeting helps you with…
• http://www.wagnerlawgroup.com/documents/Putting404a-
5DisclosureRulesIntoPracticeAGuideforPlanSponsors.pdf
• http://www.wagnerlawgroup.com/documents/Putting408b2Di
sclosureRulesIntoPracticeAGuideforPlanSponsors.pdf
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7. SCOTUS May 18, 2015
• TIBBLE ET AL. v. EDISON INTERNATIONAL ET AL.,
• "Under trust law, a trustee has a continuing duty to
monitor trust investments and remove imprudent
ones.
• This continuing duty exists separate and apart
from the trustee’s duty to exercise prudence in
selecting investments at the outset.
• The Bogert treatise states that “[t]he trustee cannot
assume that if investments are legal and proper for
retention at the beginning of the trust, or when
purchased, they will remain so indefinitely.”
• Rather, the trustee must “systematic[ally]
consider[r] all the investments of the trust at
regular intervals” to ensure that they are
appropriate."
• https://www.law.cornell.edu/supremecourt/text/13-550
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8. Harvard Law School Forum on
Corporate Governance
• “We recommend that 401(k) plan fiduciaries
regularly monitor a 401(k) plan’s investment
alternatives, at least once a year in most cases.”
• The 401(k) plan fiduciaries should:
• Meet regularly to examine investment alternatives in
regard to current and long-term performance and
relative to other investments in the same class
• Adopt and follow an investment policy statement.
• Document decision-making via minutes or resolutions.
• Consider retaining experts to provide guidance as to
which investments should be added and removed.
• Monitor service providers
• https://corpgov.law.harvard.edu/2015/06/22/supreme-court-
fiduciaries-must-monitor-offered-401k-investment-
alternatives/
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9. The Supreme Court unanimously
decided…
• “that separate and apart from the selection of
investment choices, a fiduciary has a "continuing duty"
to monitor investments and remove imprudent ones.”
• Fiduciaries satisfy their duties by being attentive and
active and must engage in an independent
investigation of the plans' investments.
• Failure to implement adequate monitoring and
reviewing procedures may subject fiduciaries to
personal liability for a breach of their fiduciary duty.
• Monitoring and review procedures to consider include:
• Establishing an investment committee, whose members
have been educated on ERISA fiduciary responsibility
• Maintaining thorough written records of all reviews
• Creating written guidelines for monitoring
• Developing a recorded and prudent written process for all
decisions concerning plan investments
• http://tarterkrinsky.com/publications/supreme-court-rules-that-
401k-plan-sponsors-have-an-ongoing-duty-to-monitor-
investments-tibble-v-edison-
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10. 9th Circuit Rules 12/19/16
• Tibble vs. Edison International
• Instead, the en banc court noted that “the Supreme
Court held that the fiduciary duty is continuing in
nature, and that each new breach begins a six-year
limitations period.”
• Moreover, it noted that the Supreme Court “recognized
the breach as ‘a fiduciary’s allegedly imprudent
retention of an investment’ which results in a series of
related breaches as the investment is retained over
time,” and that “only a ‘breach or violation,’ such as a
fiduciary’s failure to conduct its required regular
review of plan investments, need occur within the six-
year statutory period;
• “…initial investment need not be made within statutory
period.”
• “Beneficiaries subject to higher fees for materially
identical funds lose not only the money spent on higher
fees, but also“lost investment opportunity”; that is, the
money that the portion of their investment spent on
unnecessary fees would have earned over time.”
• Tibble II, 2010 U.S. Dist. LEXIS 69119, at *124–25.
• http://www.napa-net.org/news/technical-
competence/erisa/9th-circuit-resuscitates-excessive-fee-case/
• https://cdn.ca9.uscourts.gov/datastore/opinions/2016/12/16/
10-56406.pdf
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11. Failure to Act = No Insurance
• A recent decision by a federal appeals court
underscores that retirement plan fiduciaries must
address financial issues brought to their attention.
• Although engaging consultants and relying on their
advice is evidence of prudence it is not sufficient to
entitle the employer to judgment as a matter of law.
• That is particularly so in this instance, since the
consultants did not unequivocally endorse the
reasonableness of the fees.
• http://ww2.cfo.com/human-capital-
careers/2011/05/failure-to-act-triggers-erisa-
liability/
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13. Why Passive is Overrunning Active
• Investors are moving into index-tracking funds that
mirror markets. Here’s why.
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16. DOL tells employers when they
must fire advisors
• When a plan sponsor recently received a notice
announcing a Department of Labor (DOL)
investigation of its plan, it was clear that the
investigator planned to look at 408(b)(2)
compliance
• “…if the committee finds that the compensation of
a provider was excessive, it can stop the bleeding,
so to speak—and limit liability—by immediately
negotiating reasonable compensation with that
provider, and perhaps recouping excessive
compensation paid in the past.
• If a provider won’t negotiate, the answer is fairly
obvious: Fire the provider and hire a new one.
• It doesn’t make any sense for fiduciaries to keep a provider
that is hurting the employees. And to do so would be
dangerous to the fiduciaries, since they are the ones at risk.
• http://www.plansponsor.com/MagazineArticle.aspx?id=6442513268
• http://riabiz.com/a/2012/2/10/dol-tells-employers-when-they-must-fire-advisors-
to-401k-plans
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18. 10 statements Insurers/DOL Like…
1. We have an investment policy and we review it annually.
2. We use only the lowest cost institutional share classes.
3. Fees to providers do not rise when our staff saves money.
4. Our fiduciaries acknowledged in writing they are "experts."
5. Our providers give us copies of their liability policies.
6. Our ERISA fiduciaries have specific liability coverage.
7. We benchmark our providers’ pay every year.
8. We maintain at least 3 years of plan meeting minutes.
9. We review our 404a-5 notices' returns v. benchmarks.
10.We can prove our broker/advisor is necessary.
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19. • Giving plan participants a wide range of investment
options is a good thing — but only to a point.
• Targeting seven universities, including New York
University, Duke, Yale and MIT, the lawsuits suggest
there are at least two problems when offering too
many fund choices:
• Overwhelming participants, and
• Incurring excessive costs.
• Another possible problem: Fiduciaries may not have
the ability to monitor performance of so many funds.
• “Defendant provided a dizzying array of duplicative
funds,” according to Sacerdote v. New York
University. According to the complaint, NYU
offered more than 70 options for participants.
• To put that number into perspective, the complaint
cited a survey that determined the average
number of funds in defined contribution plans,
excluding target date options, is 15.
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