Recent Case Emphasizes Importance of Fiduciary Decision-Making Process
Monday, May 28, 2012
The decision-making process of a retirement plan fiduciary has always been important. However, the recent district court decision in Tussey v. ABB, Inc., which levied a $35.2 million judgment against the employer-fiduciary (ABB), emphasizes the importance of a prudent decision-making process. Here are some of the major missteps made by ABB and the key takeaways for other plan fiduciaries:
1. If you have a policy, FOLLOW IT.
In determining that ABB breached its fiduciary duties, the court noted that ABB did not follow the decision-making process set forth in its investment policy. Investment policies can serve as valuable support for a fiduciary’s decision. However, fiduciaries who implement such policies and either do not use them or do not update them as processes change could be putting themselves at increased risk of a fiduciary breach. Fiduciaries should routinely review and update their policies to accurately reflect the decision-making process.
2. Evaluate Fees Thoroughly and Periodically.
The court harshly criticized ABB for inadequately evaluating the fees paid to its service provider. Fiduciaries must thoroughly and periodically review the total compensation paid to a service provider. Employers may evaluate the reasonableness of compensation by requesting proposals from other vendors and/or by hiring a consultant with expertise in plan fee arrangements.
3. Don’t Ignore the Advice of Advisors.
The court also found ABB at fault for failing to follow up on advice from an expert that the fees ABB was paying to a service provider were unreasonable. Plan fiduciaries must operate the plan as a prudent expert would and consult with experts in areas in which they lack expertise. It is not enough, however, to just hire the expert. Fiduciaries must take the experts’ advice into consideration and then take prudent action on that advice.
4. Document, Document, Document.
In evaluating the ABB fiduciary’s actions, the court reviewed and referenced documentation of the fiduciary’s meetings and, in certain instances, determined there were fiduciary breaches because the materials did not indicate that the fiduciary considered relevant issues. Fiduciaries should always create detailed minutes of any meetings and keep all documentation that reflects (1) information considered by the fiduciary, (2) concerns evaluated by the fiduciary, (3) advice of experts and how the fiduciary evaluated and responded to that advice, and (4) the ultimate decision made, including the reason for taking that action over other available options.
Kelsey Mayo has extensive experience working with governmental, non-profit, and for-profit employers on all aspects of qualified and non-qualified plans, welfare benefit plans, fringe benefit plans, and executive compensation plans.
Kelsey routinely represents clients before the Internal Revenue Service and Department of Labor in matters involving employee benefits.