In July 2018, New York University (“NYU”) won the dismissal of a class-action lawsuit accusing the school of mismanaging their retirement plans. The charges included the usual suspects: imprudent conduct by the plan committee, poor performing funds and excessive recordkeeping fees. C. Frederick Reish, a well-known ERISA attorney, analyzed the judge’s decision and wrote a series of articles about it for the 401(k) Specialist. He concluded that ‘good process’ matters and, in one of the articles, presented some of the lessons learned from this decision about the fundamentals of what constitutes a ‘good process.’ These lessons are summarized here for your consideration in managing your plans.
The NYU Plan Committee Met Quarterly
Although there are no specific requirements as to how often a plan committee should meet, there is a general consensus that it should be at least annually. Reish, however, points out that committees are responsible for a wide range of matters of varying frequencies. For example, the monitoring of service providers may only need to be done on an annual basis, whereas investment monitoring may require more frequent review. Additionally, unusual matters may come up that may also require committee attention more than once a year. As a result of these and other considerations, he concludes that quarterly meetings are a “reasonably good practice.”
The Committee Used an Expert Adviser
Again, there is no specific requirement that a plan utilize the services of an adviser. While Reish points out that it is a best practice, he further indicates that if committee members lack the expertise to select and monitor the plan’s investments, then they need the services of such an expert. In our experience, a well-designed and managed plan generally has a good adviser. We strongly recommend the benefits of a good adviser to our clients who don’t utilize the services of one or who use an adviser who has a conflict of interest.
The Committee Adopted and Followed an Investment Policy Statement (“IPS”)
Having an IPS is also a best practice, not a requirement. If prepared properly, the IPS will include all aspects related to investments (e.g. goals, approach, menu construction, and steps to be followed by the committee in evaluating the investments). It should be a roadmap for how the committee selects and monitors investments.
Following ‘good processes,’ such as those pointed out by Reish, will help a plan committee demonstrate that it is prudently meeting its fiduciary responsibilities. Just as importantly, ‘good processes’ should also make for a better plan—one that results in good participant outcomes and keeps the sponsor out of trouble.