July 2015

Inside this issue:


Tibble v. Edison: The Supreme Court Speaks Out on Fiduciary Duties

—W. Michael Montgomery, AIF, CFS, CLU, TGPC, C(k)P

In a unanimous decision, the United States Supreme Court ruled on May 18, 2015 that retirement plan fiduciaries have a continuing duty to monitor the investments offered in their company’s retirement plans. The narrow issue before the court was whether the ERISA 6-year statute of limitations would preclude litigation based upon investments selected more than six years before the lawsuit. The broader story is that the widespread press coverage of this ruling called attention to the oversight responsibilities of employers sponsoring retirement plans.

The Supreme Court ruled 9-0 that the duty to monitor is not limited to the initial selection of plan investments, but is an ongoing process. Invoking trust law, Justice Stephen Breyer stated:

“ERISA’s fiduciary duty is derived from the common law of trusts…which provides that a trustee has a continuing duty – separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove imprudent, trust investments.”

To plan sponsors and advisors who are familiar with sound fiduciary processes, the news in Tibble v. Edison may be that there is no real news. Retirement plan industry experts have been saying for years that plan fiduciaries have a responsibility to establish and document a process for selecting, monitoring and potentially replacing the investments offered in their retirement plan in a way that promotes the exclusive interest of plan participants. Fees and revenue streams related to investments also need to be understood, accounted for, and managed efficiently. These principles were not first established by Tibble v. Edison. Indeed, the Supreme Court’s opinion referred extensively to long-established precedent under ERISA, the common law of trusts, and The Uniform Prudent Investor Act.

Best practices for fiduciary investment monitoring have been a regular topic in this newsletter. A partial list would include the creation of a plan Investment Policy Statement, regularly scheduled investment reviews, implementation of decisions, and retention of meeting minutes and reports. Plan sponsors who do not consider themselves experts in investment monitoring should hire an independent fiduciary that can help with these responsibilities.

To read the Supreme Court opinion in its entirety, click on this link: http://www.supremecourt.gov/opinions/14pdf/13-550_97be.pdf


Socially Responsible Investments—Think Green?

It was a few years ago that the Department of Labor issued guidance reaffirming their position that the goal for investments in ERISA plans must be to design investment menus that allow participants to attempt to maximize returns. The guidance specifically addressed investments meeting environmental (green) criteria known as “socially conscious” or “socially responsible” investments. According to the DOL guidance, “The plan's fiduciaries may not simply consider investments solely in green companies. They must consider all investments that meet the plan's prudent financial criteria.”

The same selection and monitoring process that is utilized for the core investments in the plan’s menu must be applied to socially responsible investments. More from the DOL guidance, “…fiduciary consideration of noneconomic factors should be rare and, when considered, should be documented in a manner that demonstrates compliance with ERISA’s rigorous fiduciary standards.” Furthermore, the DOL indicated that “fiduciaries who rely on factors outside the economic interests of the plan in making investment choices and subsequently find their decision challenged will rarely be able to demonstrate compliance with ERISA absent a written record demonstrating that a contemporaneous economic analysis showed that the investment alternatives were of equal value.”

In other words, the fact that an investment is socially responsible is not a reason to offer it in a retirement plan. Always use quantitative and qualitative analysis to determine the appropriateness of investments in your plan.


2015 Trending Retirement Plan Issues

It can be both interesting and useful to keep an eye on trends in employer retirement plans. What are the hot topics in retirement plans, as determined by a variety of employers for 2015?

One is a continued expansion of the tools available to plan participants that could aid their efforts to reach retirement readiness. Plan sponsors are also focused on overall financial wellness, recognizing that saving for
retirement may take a back seat for people with unaddressed financial concerns. The survey, the ninth annual from Aon Hewitt, asked nearly 250 employers of about 6 million employees what their top retirement plan concerns and priorities are for 2015.

The highest priority, with 93% saying they are very likely or moderately likely to take action in 2015, was “Create or focus on financial well-being of employees beyond retirement.” Employers also said they are very likely or moderately likely during 2015 to:

  • Measure competitive position of plan (82%);
  • Implement initiatives to address retirement savings gaps (75%);
  • Evaluate the design of the overall retirement program to make sure it is appropriate for our future workforce (75%);
  • Measure/project the expected retirement income adequacy of employees (72%); and
  • Evaluate phased retirement alternatives (38%).

Of note in the report is a changing approach to plan loans, which may hamper efforts to accumulate sufficient retirement assets. Seventy-seven percent of respondents said they believe minimizing leakage—in the form of plan loans or withdrawals—is a very or moderately important issue. Fifty-seven percent plan to take some action in 2015 to stem the leakage. The primary strategy would be to educate participants about the risks of taking a loan or withdrawal, with 86% of sponsors reporting they are very or moderately likely to do so. Sixty-eight percent said they are likely to study demographic data to learn more about participants taking loans, with a further 11% reporting they have already completed this task or don’t believe it is needed in 2015.

On the financial wellness front, respondents indicated their understanding that financial well-being extends beyond retirement plan decisions. Almost 93% of them said they are very or moderately likely to create or focus on their employees’ financial well-being outside retirement plan decision-making. Nearly half (49%) of employers believe that the significance of financial wellness is increasing, particularly in the last two years. Just 1% said it is less important.

Read more from the 2015 Hot Topics in Retirement benchmarking report at http://tinyurl.com/Aon2015HotTopics.


News From MRPA

Michael Montgomery, Managing Principal of MRPA, was recently named to the 2015 Financial Times Top 401 Retirement Plan Advisors list.* The top advisors were chosen based on several criteria, including assets under management in defined contribution (DC) plans; degree of specialization in DC plan advising; growth in DC plan assets under management; growth in number of DC plans advised; average population rate in advised DC plans; years of experience as a DC planner; industry certifications; and compliance record.

* The Financial Times Top 401 Retirement Plan Advisors is an independent listing produced by the Financial Times (May, 2015). The FT 401 is based on data gathered from financial advisors, firms, regulatory disclosures, and the FT’s research. The listing reflects each advisor’s performance in eight primary areas, including: DC plan assets under management; DC plan assets as a percentage of overall Assets Under Management; growth in DC plan Assets Under Management; growth in DC plans advised; DC plan employee participation; professional designations; experience; and compliance record. Neither the brokerages nor the advisors pay a fee to The Financial Times in exchange for inclusion in the FT 401.


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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