Commentary

As ERISA fiduciaries to the Plan, plan administrators are obligated to act for the exclusive benefit of participants and beneficiaries in ensuring that Plan expenses are reasonable.

These duties are the highest known to the law and must be performed to further the interests of the participants and beneficiaries. In discharging these duties, ERISA fiduciaries are held to the standard of financial experts in the field of investment management.

Fiduciaries must initially determine, and continue to monitor, the prudence of each investment option available to plan participants and must remove imprudent ones within a reasonable time.

In this case, offering actively managed funds, even if it charges higher fees, is not per se imprudent or disloyal. Under ERISA, merely alleging that a cheaper alternative investment exists is not a breach of the duty of prudence. ERISA does not require plan administrators to scour the market to find and offer the cheapest possible fund. Fiduciaries should not consider costs alone when establishing an investment menu for plan participants, but a prudent fiduciary must consider all relevant factors. It may be prudent, for example, to choose a fund with a higher fee, if that fund includes the potential for a higher return, a lower financial risk, more services offered, or greater management flexibility. Finally, the fact an investment underperforms in the market does not prove imprudence.

However, a plan fiduciary’s process for selecting and monitoring actively managed funds is subject to the same duties of loyalty and prudence that apply to the selection and monitoring of other investments.

Fiduciaries should also keep in mind that once it determines an investment option should be removed, it must do so within a reasonable time. Keeping an imprudent investment option within an options portfolio beyond a reasonable time, even if identical and less costly investments are available, may still subject a fiduciary to breach of duty claims. Plan administrators should conduct a regular review of competing plans and determine which ones provide services and options that most closely carry out the funds’ written investment goals and objectives.