ERISA §402(b)(2-3): … any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan …
(2) That a named fiduciary, or a fiduciary designated by a named fiduciary pursuant to a
plan procedure described in section 405(c)(1), may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the plan; or
(3) That a person who is a named fiduciary with respect to control or management of the
assets of the plan may appoint an investment manager or managers to manage (including the power to acquire and dispose of) any assets of a plan.
ERISA §402(c)(2): A fiduciary … may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the plan.
ERISA Section 404(a) (Preamble): The Department is of the opinion that … under the “prudence” rule, the standard to which a fiduciary is held in the proper discharge of his investment duties is defined, in part, by what a prudent person acting in a like capacity and familiar with such matters would do. Thus, for example, it would not seem necessary for a fiduciary of a plan with assets of $50,000 to employ, in all respects, the same investment management techniques as would a fiduciary of a plan with assets of $50,000,000.
29 C.F.R. §2550.404a-1(b)(1)(A)(i): Has given appropriate consideration to those facts and circumstances that … the fiduciary knows or should know are relevant to the particular investment or investment course of action involved, including the role the investment or investment course of action plays in that portion of the plan’s investment portfolio with respect to which the fiduciary has investment duties ….
DOL Interpretive Bulletin 96-1: As with any designation of a service provider to a plan, the designation of persons to provide investment educational services or investment advice to plan participants and beneficiaries is an exercise of discretionary authority or control with respect to management of the plan; therefore, persons making the designation must act prudently and solely in the interest of the plan participants and beneficiaries, both in making the designation(s) and in continuing such designation(s).
UPIA §5: [The trustee must] invest and manage the trust assets solely in the interest of beneficiaries.
UPIA §7 (Comments): [W]asting beneficiaries money is imprudent. In devising and implementing strategies for the investment and management of trust assets, trustees are obligated to minimize costs.
UPIA §9(a)(2): A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in … establishing the scope and terms of the
delegation, consistent with the purposes and terms of the trust ….
UPIA §9(c): A trustee who complies with the requirements of subsection (a) [prudently delegates] is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
UPMIFA §3(b): In addition to complying with the duty of loyalty imposed by law other than this [act], each person responsible for managing and investing an institutional fund shall manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
UMPERSA §5(a)(2): … obtain by [employment or] contract the services necessary to exercise the trustee’s powers and perform the trustee’s duties including actuarial, auditing, custodial, investment, and legal services ….
UMPERSA §6 (Comments): [A] trustee could not prudently agree to an investment management agreement containing an exculpation clause that leaves the trust without recourse against reckless mismanagement.
UMPERSA §6(a) and (b):
(a) A trustee or administrator may delegate functions that a prudent trustee or
administrator acting in a like capacity and familiar with those matters could properly
delegate under the circumstances, and
(b) The trustee or administrator shall exercise reasonable care, skill, and caution in:
(1) Selecting an agent, and
(2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the retirement program ….
UMPERSA §6(b)(2): The trustee or administrator shall exercise reasonable care, skill, and caution in … establishing the scope and terms of the delegation, consistent with the purposes and terms of the retirement program.
UMPERSA §6(d): A trustee or administrator who complies with subsections (a) and (b) is not liable to the retirement system, or to its participants or beneficiaries, for the decisions or actions of the agent to whom the function was delegated.
ERISA §404(a)(1)(A)(i) and (ii): … discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries, and for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan.
DOL Advisory Opinion 97-16A dated May 22, 2007: [Relative to parties receiving 12b-1 fees and other revenue-sharing fees; plan fiduciaries have a duty to]:
(i) Know whether its service providers are receiving such compensation;
(ii) Know the amount of such compensation; and
(iii) Ensure that the total compensation, including such forms of indirect compensation,
received by the service providers from the plan, directly or indirectly, is no more than
reasonable compensation for the services provided to the plan.
DOL (PWBA) handbook, “A Look at 401(k) Plan Fees”: Fees and expenses are one of several factors to consider when you select and monitor plan service providers and investments. The level and quality of service and investment risk and return will also affect your decisions.
- Begin by establishing an objective process to aid in your decision-making. This process should include an understanding of the fees and expenses you will pay and a review of those charges as they relate to the services to be provided and the investments you are considering.
- Before negotiating with prospective providers, think about the specific services you would like from a service provider (e.g., legal, accounting, trustee/custodian, recordkeeping, investment management, investment education or advice). Include the types and frequency of reports you wish to receive, communications to participants, meetings for participants, and the frequency of participant investment transfers.
- You will also need to consider the level of responsibility you want the prospective service provider to assume, the services that must be included in any retirement plan, the possible extras or customized services you wish to provide, and optional features, such as loans, Internet trading, and telephone transfers.
DOL (PWBA) Letter dated July 29, 1998: Section 404(a)(1)(D) of ERISA requires plan fiduciaries to discharge their duties in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with Title I of ERISA. In evaluating the payment by a plan of particular expenses, the fiduciaries must first examine the language of the plan documents. If the expense would be permitted under the terms of the plan documents, then the fiduciaries must determine whether such payment would be consistent with Title I of ERISA …. In choosing among potential service providers, as well as in monitoring and deciding whether to retain a service provider, the trustees must objectively assess the qualifications of the service provider, the quality of the work product, and the reasonableness of the fees charged in light of the services provided ….
Liss v. Smith: At the very least, trustees have a duty to (i) determine the needs of a fund’s participants, (ii) review the services provided and fees charged by a number of different providers, and (iii) select the provider whose service level, quality, and fees best match the fund’s needs and financial situation.
UPIA §7: In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.
UPMIFA §3(c): In managing and investing an institutional fund, an institution:
(1) May incur only costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution.
UMPERSA §7 (5): A trustee or other fiduciary shall discharge duties with respect to a retirement system …
(5) Incurring only costs that are appropriate and reasonable ….
UMPERSA §7 (5) (Comments): Wasting the money of participants and beneficiaries is imprudent … determining what costs are appropriate and reasonable will depend on factors such as the purposes of the trust (which for retirement systems covered by this Act are specified in [UMPERSA §7(2) set forth above], the types of assets held, and the skills of the trustee or fiduciary. On this last factor, for example, trustees who are quite inexperienced on investment issues may be justified in expending more for investment advice than trustees who are quite experienced.
500-1: Agreeing on implementation responsibilities
500-2: Selecting products and services for implementation