Is your plan in order?

In these uncertain economic times,
how do fiduciaries of retirement
plans protect themselves against
claims by plan participants for losses
incurred in the stock market and other

Fiduciaries have very strict legal
duties placed on them due in large part
to the fact that they are managing other
people’s money. If they fail to meet
these duties, they can be held liable for
any losses that result from such a failure, says Douglas S. Neville, an officer
and the practice group manager of the
employee benefit practice group at
Greensfelder, Hemker & Gale, P.C.

“Lately, we have seen increased awareness among fiduciaries about these
duties,” Neville says. “When plans are
making money during good times, there
are fewer complaints about how the
plans are being managed. But when plan
participants start seeing large losses in
their plan accounts, complaints start
coming in.”

Smart Business spoke to Neville
about how fiduciaries can be sure they
are following their duties.

In a tough economic landscape, is the
appearance of more losses enough to trigger concerns about the fiduciary?

Not necessarily. The fact that there are
more losses during difficult times is just
a reflection of the overall economy. In a
sense, losses are to be expected during
such times. Fiduciaries of a plan with
losses during such times may be doing
everything correctly in terms of their

The problem starts when participants
start seeing losses that impact their own
personal situations. These situations
may cause the participants to start questioning the plan fiduciaries about how
they have been managing the plan. While
the fiduciary may have been doing everything the right way, there is the possibility of increased scrutiny. That is why it’s
very important that plan fiduciaries
review their activities with respect to the
plan in order to ensure that they are fulfilling their fiduciary duties, and if any deficiencies are identified, they should
be addressed immediately.

What are the signs of fiduciary misconduct?

Although misconduct can certainly be
a problem with management of plans, in
most circumstances involving fiduciary
breaches, the plan fiduciaries simply fail
to properly perform their duties, as
opposed to engaging in some overt
wrongful act.

The first problem that some plans
have, especially in smaller businesses, is
that the plan fiduciaries are not really
qualified to serve in that position. If the
people running the plan don’t have the
background to be dealing with such matters, then we will always recommend
that they find professionals who can
help manage the plan.

Lack of formal documents relating to
fiduciary decisions can also be a problem. It is important that a retirement
plan have an ‘investment policy’ that is
used to guide the decision-making
process related to plan investments, and
decisions should be documented. If
there is more than one person making the decisions, the fiduciaries should
hold regular meetings to review the status of plan investments and keep
records of these meetings. Plans in
which such records are lacking are more
likely to have a problem than plans with
thorough documentation.

Lack of communication with participants may also be symptomatic of a problem, especially where there is a request
for information and the response is not
forthcoming. In some situations, lack of
information about a plan could point to
actual misconduct, as opposed to simply
failing to fulfill the fiduciary duties.

How can a fiduciary cover itself when there
is so much inherent risk?

The most important thing a fiduciary
can do is engage in a process designed to
promote the financial interests of the
plan and its participants. This requires
that the fiduciaries regularly review the
status of the plan and its investments
and determine whether any adjustments
are required. In doing so, fiduciaries
should engage competent financial
advisers to assist with the analysis and
ask questions of any financial advisers
that they engage. Rather than blindly
relying on advice of such advisers, plan
fiduciaries should critically review and
scrutinize such advisers, analyses and
recommendations. In the event of a
claim against the fiduciaries, it is important that they be able to show that they
gathered all the information necessary
to make an informed decision.

Fiduciaries should periodically examine whether they are qualified to serve in
such a capacity. As a plan grows and
becomes more complex, sometimes it
can ‘outgrow’ the qualifications of the
fiduciary. Finally, plan sponsors and
fiduciaries should ensure that fiduciaries are covered by fiduciary liability
insurance. It is important to carefully
review such policies to ensure that the
amount and legal terms of the coverage
are adequate.

DOUGLAS S. NEVILLE is an officer and the practice group manager of the employee benefit practice group for Greensfelder, Hemker
& Gale, P.C. Reach him at (314) 345-4742 or [email protected].

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