PLANSPONSOR - February/March 2020 - 19

can go out and gather 'blind' bids from the marketplace every
couple of years. And often, that data can be used to renegotiate
with a plan's current vendor, " he says. " Certainly, every four or
five years it makes sense to do some additional evaluation. Is
that a full-scope RFP? Maybe that's needed for some plans, and
maybe that's not needed for other plans. "
An Art, Not a Science
Fiduciaries cannot guarantee they will never get sued, agrees
ERISA attorney Judith Boyette, a partner in Hanson Bridgett
LLP in San Francisco who also advises on best practices. So risk
mitigation " is really an issue of setting up prudent processes and
procedures and then following them consistently, " she says. " And
consider whether you need to have an investment adviser, so that,
if your committee members are not normally in the business of
making investment decisions, you have an adviser who is. "
It is also critical for committee members to get educated
about things such as the criteria laid out in their plan's investment
policy statement (IPS), Boyette says. " You're going to be judged
legally on whether the options you selected are consistent with
what you said in the IPS you were going to offer and whether
they were tailored to reflect your employee population, " she says.
Further, committees need to document their prudent decisionmaking,
especially in the minutes of committee meetings.
" Keeping good minutes is so important, " Solomon says. " You
can follow prudent processes every time, but none of this matters
in a lawsuit if you can't prove it. "
The minutes should describe the subjects discussed and
the decisions made by the committee, but not get into detail
on specific comments made, Boyette suggests. " That's one of
the reasons we actually review the minutes from a committee
meeting, before they get approved, " she says. " You need to
have enough information so that it's clear the subjects you
were discussing and any materials you were reviewing. But I
don't advise putting in the minutes the individual comments
of committee members. " That could provide future fodder for a
plaintiff's attorney, she adds.
The minutes should give a sense of the process a committee
followed in making a decision, " but you certainly don't want to
record everything that everyone said, " Banish concurs. " You can
say something like, 'XYZ adviser recommended a fund change
due to a change in the investment manager; the committee
agreed, and we will consider alternate funds at the next meeting.'
But don't say, 'Mr. Smith hates the fund, and Mr. Jones loves it.'
Committee members should not have a " court reporter
mentality, " Stapel says. " The key to the minutes is to reflect
the decisions made and the basis for them, " he says. " And don't
negatively characterize your prior actions in the minutes. Don't
say something like, 'The previous share-class fees were too
high.' You can say in the minutes, 'Our consultant is going to
look for share classes with better fees.' There's no need to characterize
the past in the minutes. " -Judy Ward
" This helps the committee understand
what each different glide path's allocations
mean under different scenarios
and to pick out the one that best meets
the committee's philosophy of what that
plan's participants need, " she says.
Think carefully about participant demographics
and behavior. Cammack Retirement's
Earle Allen asks sponsors evaluating
target-date funds about issues
including their participant demographics.
" Do they have a young population or an
older population? Do they tend to retire at
age 65, or earlier or later than then? "
Todd Solomon of McDermott Will
& Emery says knowing your participants'
behavior will help when you evaluate
TDFs; it will, e.g., indicate whether a " to "
or " through " glide path would work best.
" Do you have mostly participants who keep
their money in the plan after they retire,
or do they take it out? " he says. " If they
keep money in the plan, a 'through' path,
with allocations continuing to change into
retirement, could make more sense. And
a 'to' path could make more sense for a
participant base that rolls out their money
at retirement. Matching that up to your
workforce is very important. "
Look under the hood. " I think fiduciaries
haven't always dissected these funds as
much as they could, " says Jeff Banish of
Troutman & Sanders. " With a target-date
fund, you need to go beyond looking at
it as a single fund, because it is really a
'fund of funds.' The investment manager
is allocating dollars across multiple funds,
to get diversification. And each target-date
fund provider has a different allocation. "
Banish cites the Anderson v. Intel Corp.
Investment Policy Committee case, pending
before the U.S. Supreme Court, as a test of
how far a fiduciary's analysis needs to go.
" The plaintiff is saying, 'You have hedge
funds and private equity in the allocation,
so you've exposed your participants to
risky investments,' " he says. " It's going to
be interesting to see how that plays out. "
Consider a TDF-specific request for
proposals (RFP). Three major investment
managers have the majority of the targetdate
fund market share, according to the
2019 PLANSPONSOR Target-Date Fund
Survey. Vanguard controls 37.8% of the
marketplace, followed by Fidelity at 19.4%
and T. Rowe Price at 12.4%.
" I think fiduciaries periodically
should do an RFP specifically for their
plan's target-date funds, " Buckmann says.
" You can get the detailed information you
need to make a prudent decision. " The
RFP can delve deeper into issues such
as fees, potential provider conflicts of
interest, and the glide path's construction.
" And if you have done it carefully, it's like
gold if you get sued, " she says. -JW
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