Rick Pearl Speaks With Plan Sponsor About Fiduciary Duty Under ERISA

Benefits and executive compensation partner Rick Pearl spoke with Plan Sponsor about two lawsuits filed by plaintiffs in January focused on their retirement plans’ investment offerings. The article explored the available guidance under ERISA and whether sponsors of the plans violated their fiduciary responsibilities.

“ERISA’s general standard of fiduciary prudence is vague by design,” explained Pearl. “ERISA was not meant to micromanage. It was meant to say to fiduciaries, ‘If you are not an expert on an issue and you have to make a decision about an issue that requires some expertise, you act like a prudent person would in that situation, consistent with how trustees act in state law trusts, and you go out and you seek expert advice.’”

Pearl pointed to Section 404(c) of ERISA as providing guidance on structuring investment menus. The section’s provisions and DOL regulations shield plan fiduciaries from liability for participants’ investment decisions, as long as the fiduciary provides sufficient choice, information and control over investment options. A significant requirement is that that plan offers a menu of investment options that span the risk-reward spectrum. However, fiduciaries must still ensure the overall prudence of the plan’s investment offerings.

“A fiduciary does have an obligation to be conversant in the characteristics of an investment option that might affect the goals of the investment,” added Pearl. “So, although the plan fiduciaries don’t have to be experts, if there are fees or other considerations that are affecting the fund or the investment option that they have, then it is the obligation of the fiduciary to understand those considerations and ask questions of their expert advisers.”