The first step, says Jania Stout, practice leader with Fiduciary Plan Advisors at HighTower, is to simplify fiduciary responsibilities. Plan sponsors need to focus on four pillars under the Employee Retirement Income Security Act (ERISA). “Those four components really encompass everything plan sponsors should do,” she tells PLANADVISER.

Adhering to the terms of the plan document is the first pillar, Stout says, followed by the duty to act as a prudent expert or hire one, in order to do due diligence on investment choice and fund monitoring. The third pillar, loyalty, is critical, she says. “Every decision made around the plan, whether it’s choice of providers or plan or investment options, has to be made for the sole focus of benefiting the plan’s participants,” Stout says.

Some of plan sponsors’ difficulty in understanding the scope of fiduciary duties comes from the complexity of ERISA, believes James Holland, director of business development, MillenniuM Investment and Retirement Advisors. “No one’s ever explained it to them,” Holland tells PLANADVISER. “They have a hard time grasping what their role is, in part because nearly every player—the recordkeeper, the plan provider, the investment committee—defines it differently.”

But Holland cuts to the heart of fiduciary responsibility. “There is only one,” he says. “To put the participant’s interests first.”

The last pillar, diversification, Stout says, is perhaps the easiest to comply with. Plan sponsors must give participants the ability to diversify investments to grow their savings and protect against large losses. In her 20 years of experience, she has seen very few plans that did not have appropriate diversification capabilities that allow people to move their money into different asset-allocation models in a timely way.

ERISA Overview

Plan sponsor education is critical, according to Holland, who emphasizes the plan sponsor’s need to understand all the moving parts of a plan. He recommends bringing in a professional to teach the plan sponsor or plan committees how all the roles work and their associated fees. Important topics include the duties and fees of a recordkeeper, broker, third-party administrator (TPA); and the fees in a particular mutual fund, separate account, or a collective trust.

It is vital to choose an independent expert, Holland stresses, not someone affiliated with a mutual fund or with providing any plan services. “The plan sponsor needs an independent assessment,” he cautions. Logical candidates are the plan’s consultant or adviser.

Small plan sponsors with fewer than 50 participants and perhaps scant resources can start by reading, Stout advises. Many publications exist to support plan sponsors, but smaller companies with perhaps fewer than 50 participants and scant resources might find they hit some roadblocks in understanding. “Some publications are very complex,” she warns. Then it’s time for the retirement plan adviser experienced in ERISA plans to step in. Advisers can be an invaluable resource for plan sponsors; their qualifications and ability to communicate the ins and outs of fiduciary responsibility are top selling points.

Stout suggests plan advisers offer specific fiduciary training for their plan sponsor clients, such as a fiduciary overview for the retirement plan committee or a best practices session for the investment committee.

Fees are an excellent starting point for plan sponsor education, Stout believes. The way fees work inside the retirement plan is a difficult topic for many, she says, because fees are complex to those who don’t live and breathe in this world. “Every fund family is different and has different revenue-sharing agreements,” Stout says. Just because a plan sponsor learns how one fund shares fees, that doesn’t mean they can check the box on this topic. With every new provider or fund, the plan sponsor needs to pull up the covers again to find out how the fees work.

The duty to monitor fees means that the discussion about fees is ongoing. “It needs to be part of the discussion at every single committee meeting—the duty to monitor ties into loyalty,” Stout says. The landscape shaded by Tibble v. Edison underscores the importance of this fiduciary duty. “In the past, committees talked about performance but very little about fees,” she observes. “But the lawsuits are all about fees—not performance of the fund.”

Cost alone is not the issue, according to Stout. The plan sponsor needs to scrutinize the fees to see who is getting paid for which services from every investment in the plan and make sure the fees are reasonable.

Judging the reasonableness of fees is an area of constant concern for plan sponsors, says Shelby George, senior vice president, adviser services for Manning & Napier, particularly when it comes to the investment lineup. “Those fiduciaries that allow concerns over future litigation to drive their primary decisions regarding investment options may be ignoring a fundamental ERISA command to act solely in the interest of participants,” she tells PLANADVISER.

Eliminating or choosing a particular investment strategy solely to head off a lawsuit can fly in the face of ERISA, George says. It is in fact putting personal or corporate interests ahead of participants and beneficiaries, which ERISA discourages. “At a very basic level, many plan sponsors, at times, miss some of the fundamental components of procedural prudence.”

To assess the reasonableness of fees, Stout recommends using benchmarking tools through a provider or through a third party, such as BrightScope or Fiduciary Benchmarks.

When it comes to fiduciary duties for plan sponsors, Holland believes it is impossible to underestimate the importance of learning about fees. “A 9-0 Supreme Court ruling [in Tibble]? When’s the last time you saw a unanimous decision?” he says. The issue goes beyond political party affiliation. “The plan sponsor has to understand who’s touching the plan. You’re responsible. If the Tibble decision is not the wakeup call, I don’t know what will be.”

Contrary to what providers may think, Holland says, there is only one boss in a retirement plan: the participant. “We all answer to the participant,” he says.