August 2015

Inside this issue:


In last month’s Fiduciary Advisor, we commented on the impact of the U.S. Supreme Court’s decision on Tibble v. Edison. This month, we are providing additional details and commentary from a recent article written by Retirement Plan Advisory Group, a national alliance of retirement plan specialists.

In May, the Supreme Court of the United States published its long-awaited opinion in Tibble v. Edison International. The Supreme Court held that an ERISA fiduciary has a duty to continuously monitor the prudence of investment options offered under a qualified retirement plan, separate and distinct from their duty to prudently initially select investment options. While the Supreme Court’s brief opinion clearly dictates a fiduciary’s responsibility under ERISA to review investment options on a continuing basis, it did not express an opinion on the scope of such a review.

The Participants’ Claim
Participants in the Edison 401(k) Savings Plan brought a class-action lawsuit against the fiduciary of the Plan claiming a breach of ERISA’s duty of prudence related to the inclusion of six mutual funds in the Plan’s investment option lineup. All six mutual funds were higher-cost, retail class shares. The participants claimed that institutional share classes (lower fees) of the same six mutual funds were available for inclusion in the Plan. Three of the contested mutual funds were added to the Plan’s investment lineup in 1999 and three were added in 2002.

Lower Court Decisions
The District Court found that with respect to the three funds added in 2002 there was no evidence to indicate that the Plan’s fiduciary had considered the availability of lower-cost, identical mutual funds, and held that in failing to do so, the fiduciary breached its duty of prudence. However, with respect to the three mutual funds added in 1999, the District Court ruled that the participants’ claim was barred by ERISA’s 6-year statute of limitations that began running at the time funds were added to the plan in 1999. The District Court found that there were no changed circumstances that would have required the fiduciaries to reevaluate the appropriateness of offering the contested funds in the lineup, thereby restarting the statute of limitations. The participants appealed the District Court decision, and the Ninth Circuit Court of Appeals affirmed. The participants petitioned the Supreme Court for review, and the review was granted.

Supreme Court Decision
The issue before the Supreme Court was whether the retention of an allegedly imprudent investment is an action or omission that triggers the 6-year statute of limitations. The Supreme Court found that said retention would be a new trigger, and that the Ninth Circuit erred in failing to apply trust law in determining the nature of the Plan’s fiduciaries’ obligation under ERISA.

ERISA requires plan fiduciaries to act with the “care, skill, prudence and diligence” that a prudent person acting in a like capacity and familiar with such matters would use in similar circumstances. The Supreme Court noted that because ERISA is derived from trust law, it often looks to trust law to determine the contours of ERISA’s fiduciary duties. Under trust law, a trustee has a separate and distinct continuing duty to monitor investments and to remove imprudent ones. As a result, a plaintiff may allege a fiduciary breached its duty of prudence by failing to properly monitor investments and remove imprudent ones. A timely suit can be brought within six years of this failure.

The Supreme Court offered no guidance as to scope of the responsibility to continuously review investments. Instead, the case was remanded to the Ninth Circuit to determine what level of review is necessary and whether or not the Plan fiduciaries fulfilled their duties.

Commentary: For plan fiduciaries the Supreme Court’s decision brings an end to any illusion that ongoing monitoring of plan investments may not be required. We believe the Supreme Court’s decision was foreseeable and reasonable, as even minor changes to fact patterns may have sizable impacts on retirement plans and participants’ abilities to save for retirement given their long-term purported goals.

The good news for fiduciaries engaging Montgomery Retirement Plan Advisors is that they have been proactively managing these fiduciary responsibilities with the Fiduciary Investment Reviews™, Fiduciary Plan Reviews™, and the B3 Provider Benchmarking and Analysis™. The Supreme Court’s decision in Tibble neither creates any new responsibilities for fiduciaries, nor does it heighten the existing standard of care dictated under ERISA. Rather, it is confirmation of widely recognized legal thought that fiduciaries have ongoing responsibilities, and that those fiduciaries who meet regularly, follow process, and make prudent (and well-documented) decisions should find it easy to meet, and evidence the fact that they’ve met, those ongoing responsibilities.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.


Knowledge and action are not always aligned, and a new study demonstrates such a misalignment for retirement savers. According to the study, Americans are generally behind in terms of retirement readiness, particularly falling short in figuring out how to save.

The study divided retirement preparation into three categories: sufficient knowledge and awareness of how to prepare (“knowing”); accurate and comprehensive planning activity (“planning”); and adequate savings to generate sufficient income replacement (“having”). For two groups, employees and retirees, the study asked a series of questions designed to assess all three categories and then scored the answers from 0 to 10.

The big picture:
Employees: Employees received an average score of 5.8 out of 10 for the first category, knowing how to save. For the planning category, their average score was 3.0, and 3.5 for having adequate savings. Their overall average was 4.1.

Retirees: Retirees scored better, with a score of 7.0 out of 10 for knowing how to save, 4.2 for planning, and 5.3 for having enough savings. On average, the overall score for retirees was 5.5.

Confidence and concerns:
Employees: The study found that 65% of employees report they are at least somewhat confident in their ability to live securely throughout their retirement. Yet 59% of them reported a high level of concern about outliving their retirement savings.

Retirees: Among retirees, 82% are at least somewhat confident in their ability to live securely throughout retirement. However, 65% said they expect to live more than 20 years in retirement, even while 40% don’t believe their savings would last beyond 20 years.

What They Know
It appears from the study that increased emphasis on educating employees about financial activities that can lead to retirement security is working. When asked about the importance of a few of the following actions, significant numbers of employees reported they are extremely or very important:

  • Start saving as soon as you possibly can – 92%
  • Create a holistic financial plan – 87%
  • Determine the amount of future monthly income your current savings would produce – 85%
  • Take advantage of financial advice from your own financial professional – 69%
  • Take advantage of financial advice at the workplace – 63%

What They Do
The disconnect between knowledge and action is apparent, though, when employees who participated in the study were asked whether or not they had actually taken these financial planning steps:

  • 31% said they have a written budget
  • 36% have used a Web-based retirement calculator
  • 17% have a formal, written financial plan

Role Models Who Know and Do
The study identified a subset of employees and retirees who could be considered role models, because of their proactive status relative to retirement preparation. They scored highest on the study’s index because of the following key findings, among others.

  • Nearly two-thirds (65%) of the employees had a written budget, and almost half (45%) had a formal written financial plan
  • More than two-thirds of the retirees (68%) had a financial plan and 81% had a relationship with a financial professional
  • 82% of employees and 78% of retirees had a specific strategy for investing their assets
  • An overwhelming majority—97%—of the retirees in this group reported they are happy with their financial security, and 81% said they retired because they wanted to
  • Among employees in this role model category, 96% said they are somewhat or very confident in how well they are prepared for retirement

You can read more results from the survey, the Voya Retire Ready Index, at


As a fiduciary, you have probably heard a lot about prohibited transactions and know you need to avoid them, but seldom do we see a good definition about what they really are. Consider the following a “working” definition: A prohibited transaction occurs if a plan fiduciary engages in a plan-related transaction that the fiduciary knows (or should know) constitutes a direct or indirect:

  1. Sale, exchange, or lease of any property between the plan and a party in interest;
  2. Loan or other extension of credit between the plan and a party in interest;
  3. Furnishing of goods, services, or facilities between the plan and a party in interest;
  4. Transfer of plan assets to a party in interest or the use of plan assets by or for the benefit of a party in interest; or
  5. Acquisition of employer securities or employer real estate property in excess of the limits set by law.

In addition, ERISA prohibits a fiduciary from dealing with plan assets in the fiduciary’s own interest or for the fiduciary’s own account; acting in a transaction involving the plan on behalf of a party whose interests are adverse to the interest of the plan or its participants or beneficiaries; and receiving any consideration for the fiduciary’s own personal account from any person dealing with the plan in connection with any transaction involving plan assets.

Should you encounter a situation that creates any doubt as to whether a transaction may be considered a prohibited transaction, or a violation of its cousin the Exclusive Benefit Rule (any plan-level decision must be for the exclusive benefit of the participants), please contact your plan consultant for clarification and/or an ERISA attorney referral.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.


Q: We hear a lot about differences between the generations; is there something different we should do to encourage our younger employees to save?
A: Actually, millennials are off to a pretty good start in terms of saving. Most of these young people have not known a time when they weren’t expected to save for their own retirement. In fact, 63% of millennials who responded to a recent survey said they started saving before they reached age 25. However, less than a third of them are saving at least 10% of their salary through their employer-sponsored retirement plan. The survey reported that millennials who are offered an employer-matching contribution are very likely to take full advantage of it; 83% of them do so. That’s great, but because a traditional match may help them reach only 3% or 4% of pay when 10% should probably be their goal, the match only gets them part of the way there. Employers may be able to help millennials (and all other employees) save more by changing the formula for the employer match to one that provides, for example, 25% of the first 12% of pay contributed by the employee. This kind of “stretch” feature may entice more participants—including millennials—to contribute the full 12% of pay.

More encouraging findings from The Principal’s Millennial Research Study, 2015:

  • About two-thirds (66%) of the millennials surveyed have established a monthly budget, and 35% use a digital budgeting system
  • 57% have an emergency fund, although only about a third (32%) of them believe their emergency fund could cover their basic expenses for more than six months.

You can learn more about how the youngest workers save by reading the study, available online at

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

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