PLANSPONSOR - December/January 2020 - 46

ERISA EXAMINATION
Monitoring
Responsibility
Delegators must periodically review the actions delegates take
A
s we have noted in past columns, when a plan fiduciary
delegates responsibilities to a third party, the fiduciary
retains an obligation to monitor the delegate. This is
true for internal delegations, such as the board's delegation of
investment responsibilities to the retirement plan committee. It
is also true with respect to delegations to third-party plan service
providers.
But what does monitoring mean? What should actually be
done? There is no bright line rule. It doesn't mean the delegating
fiduciary must review every single decision or action the delegate
makes-that would defeat the purpose of delegating. But it
does mean the delegator should periodically
review a summary or other description of
the actions taken by the delegate.
In order for the board to monitor its
delegation to the plan committee, we generally
recommend that the committee provide
an annual report summarizing what it
has done over the prior year. For example,
the committee may report as to how many
times it met, the topics discussed at each
meeting and the decisions made. This
information can demonstrate to the board that the committee is
properly fulfilling its delegation.
If the committee delegates investment responsibility to an
Also, what if the manager fails to act properly? We learned
recently in Scalia v. WPN Corp.-whereby a federal court ruled
that the Department of Labor (DOL) was wrong in insisting
that retirement committee members had not properly monitored
their plan's investment manager-that such an outcome
doesn't mean the committee acted imprudently when selecting
the manager. Instead, that triggers the need for the committee
to consider what went wrong, why, and whether any corrective
action is needed. Maybe it means finding a new manager; maybe
it means watching the manager more closely; maybe it means
working with the manager to fix the situation. Again, there's no
It doesn't mean the delegating
fiduciary must review every single
decision or action the delegate
makes-that would defeat the
purpose of delegating.
ERISA [Employee Retirement Income Security Act] 3(38) investment
manager, it has given the manager authority to decide what
investment options to offer under the plan and whether and
when to add or remove an investment option. By delegating such
authority, the committee relieves itself of the fiduciary responsibility
for making the investment decision but not for overseeing
the investment manager.
This does not mean the committee must review and decide
if it agrees with every investment decision made by the manager.
And it does not mean a manager should be terminated immediately
if a poorly performing fund is selected. (If it were that easy
to pick the next hot investment, we might be sitting on a beach
somewhere rather than writing this column!) However, it does
mean that the committee should be overseeing the manager to
monitor that the latter is reviewing the plan's options and considering
when to make a change, doing so when appropriate, and
providing these services for a reasonable fee.
46 PLANSPONSOR.COM December 2019 - January 2020
" right " answer as to how to correct the problem-that depends
on the particular facts and circumstances. Instead, we come back
to our regular mantra: process, process, process. The committee
should review and discuss the situation, take the steps deemed
appropriate and then document this process.
Delegating plan responsibilities can help alleviate a fiduciary's
obligations and can provide well-needed expert services
for the plan, but it is important for the delegating fiduciary to
engage in an ongoing monitoring process with respect to the
delegation. The delegate's performance should be reviewed to
reasonably ensure that it's in compliance with the terms of the
plan and with legal rules, as well as that it meets the plan's
needs. If a fiduciary has instituted proper monitoring procedures,
there is a corresponding duty to review and evaluate
what is reported through such procedures and take corrective
action when required.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
Art by Joseph Ciardiello
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