Food for Thought for Plan Fiduciaries on Best Practices

By ASPPA Net Staff • September 02, 2016 • 0 Comments

Fiduciary duties, always a critical concern, have stood in sharper relief as the Department of Labor prepared and issued the new fiduciary rule. So it could be especially helpful to take a fresh look at best practices through which a plan fiduciary can not only meet the letter of the law, but also better serve those whom it — and the plan — serve.

In “Best Practices for Plan Fiduciaries,” Vanguard offers some ideas on best practices a plan fiduciary can consider in striving to meet those goals.

The paper posits that there are four principal areas about which a fiduciary should adopt and follow best practices:

1. organization of committees
2. investment selection and monitoring
3. plan costs
4. administrative oversight

The paper offers a wide range of ideas on best practices that a fiduciary can pursue. Following are highlights of those suggestions.


The paper suggests that the plan document designate a fiduciary committee as the named fiduciary.

The paper advocates creating a well-identified committee that has a clear sense of who a fiduciary is. “There should be a clear, focused and small group of qualified individuals who know they are the plan’s fiduciaries and are legally responsible for its operation and for making critical decisions,” Vanguard argues.

It is common, says the paper, for a single committee of plan fiduciaries to be responsible for overseeing all aspects of the plan. However, it adds, the complexity of large organizations’ plans can be such that they create an administrative committee that oversees the plan’s daily operations and an investment committee that monitors and oversees the plan’s investments.

“Employers should think carefully about the organization of the fiduciary committee,” says Vanguard, which suggests that in doing so they:

  • define the committee structure and responsibilities in the plan document or charter;

  • have a clear appointment process of one or more committees;

  • specify the relationship to the board of directors, executive management team or officers;

  • ensure appropriate ongoing training;

  • set well-articulated goals and objectives for the committee in overseeing plan assets; and

  • set well-defined metrics for committee success.

The paper notes appointing committee members can be approached in different ways; for instance, senior leadership can select individual fiduciary committee members, or the plan document can designate who within the organization will form the committee. Plan fiduciaries, Vanguard says, should create a committee that reflects a variety of perspectives on administrative and investment issues, and does not depend on a single individual’s expertise.

The paper argues that it is not necessary that committee members be experts regarding retirement plans or investments, but they should have some relevant experience in investments, plan administration or both, be familiar with their responsibilities and duties, and be willing to work to satisfy ERISA’s strict standards.

But it’s not enough to simply appoint a committee, says Vanguard — it argues that an employer also should set in place a mechanism for overseeing it.


“What matters is not the individual risk of a specific investment, but how the entire portfolio seeks to manage risk and return,” says Vanguard, which adds that plan fiduciaries may offer or invest in high-risk assets if the fiduciaries believe that the portfolio “in its entirety presents a prudent level of risk and return.”

The paper outlines concrete steps in managing plan investments, including:

  • choose and monitor plan investments regularly;

  • set overall objectives and investment strategies;

  • select appropriate investments in light of plan objectives and strategies; and

  • add or remove investments in accordance with plan policies.

“A fundamental responsibility of plan fiduciaries is to hire, evaluate, and, as necessary, terminate money managers for the plan. This means having in place a disciplined process for manager selection and evaluation. Without such a strategy, plan fiduciaries risk overreacting to the latest performance trends, either positive or negative,” the paper says.

Evaluating investment managers entails the following key elements, Vanguard argues:

  • evaluating the manager’s team and organization;

  • understanding the philosophy that guides the manager’s firm;

  • understanding the firm’s process and its consistency over time; and

  • analyzing performance over time in light of the firm’s philosophy and process.

Vanguard suggests documenting investment decisions in the plan’s investment policy statement (IPS) and using the IPS as a means to set parameters for the plan’s investment strategy and its implementation and management.

Plan Costs and Fees

The paper advocates that fiduciaries:

  • make sure that costs are allocated between the employer and the plan appropriately,

  • make sure that all costs the plan incurs and pays out of plan assets are reasonable; and

  • consider different fee allocation methods that may be available.

A key action to take is to determine whether fees are reasonable. Generally, the paper says, expenses related to the administrative or investment activities of the plan can be paid from the plan’s assets. Such expenses include those involving:

  • plan amendments to comply with tax-law changes;

  • nondiscrimination and compliance testing;

  • legal, accounting, and actuarial fees to maintain the plan’s qualified status;

  • complying with ERISA’s reporting and disclosure requirements;

  • fees paid to investment advisors; and

  • trustee and custodial services.

Still. Vanguard cautions that plan sponsors should be prudent in determining about the reasonableness of fees. “Even if costs relate to administration of the plan or the investment of its assets, ERISA is clear: Plan fiduciaries must determine that any fees paid by plan assets are reasonable based on the facts and circumstances relevant to that plan,” it notes.

Plan Administration

Vanguard reminds that plan fiduciaries must:

  • oversee the creation of plan documents;

  • ensure that the plan is operated in accordance with plan documents; and

  • satisfy all the legal and regulatory rules issued by federal agencies

Plan fiduciaries should ensure that the processes used to administer the plan conform to the written plan document, as long as there is no conflict with ERISA. And they should review, update, amend and maintain the plan document as specified by regulations in force.