As we prepare to enter a new decade and await the impact of legislation passed but not yet written from our friends at the Securities and Exchange Commission, it might prove prudent to post some New Years resolutions – and plan on actually adhering to some of them in 2011.
Resolved: More time will be spent on complying with the ERISA edict that participants receive sufficient education to make informed choices and that those investment choices are sufficiently diverse to avoid the probability of large losses.
Resolved: More time will be spent on educating plan sponsors on the importance that fees are being charged to the plan Once legislation enacted in 2010 is codified, more awareness of fees will be required requiring more diligence by plan sponsors.
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Resolved: More time will be spent on providing information, objectively and factually, to plan sponsors as to whether the fees charged to the plan are consistent with the level of investment performance of the plan's holdings and the quality and quantity of services being provided to the plan.
Resolved: More time will be devoted toward the review of fund performance and the replacement of those funds that do not meet the written evaluative criteria as defined in the Investment Policy Statement.
Resolved: More time will be directed toward the creation of an investment committee for the purpose of periodically reviewing plan documents, plan performance and the services provided to the plan, which will also require a written record of all meeting notes be maintained.
Resolved: More frequent fiduciary reviews and audits of the plan will be conducted. These informal audits can be undertaken by the Investment Committee, the advisors to the plan, an independent third party or any combination thereof. One of the key ingredients in these informal audits should include a provision of disclosure documents from both plan investment and service providers that no conflicts of interests are discernible.
Resolved: A fiduciary handbook shall be created and maintained. In the manual, the fiduciary process employed by the plan and its Trustees and its Investment Company in evaluating providers, the standards by which investment options will be either bought or sold will be initially determined and subsequently reviewed.
Why should these be New Year's resolutions for you and your clients?
Given the increasing frequency where class-action lawsuits are being initiated against plans and their fiduciaries, which includes both you and me, it would seem being both prudent and proactive to adopt and adhere to best practices.
It is also important to note that weight is given more to the processes followed by fiduciaries, including you and I primarily than to the results achieved. And it is equally important the prudent process established for our plan clients be reviewed and reworked periodically.
So Happy New Year.
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