A recent decision, following a bench trial in an excessive fees case brought against a 401(k) plan sponsor, sheds light on how a prudent process can defeat breach of fiduciary duty claims. In Nunez v. B. Braun Medical, Inc., plan participants alleged that the 401(k) plan's fiduciary committee failed to select low cost investment alternatives for the plan's lineup, and to monitor the plan's recordkeeping expenses, both of which led the plan to pay excessive fees in violation of ERISA's fiduciary duties. In finding against the plaintiffs, the court in the Eastern District of Pennsylvania pointed to consistent and reasonable actions that the committee took throughout the applicable time period to manage plan fees.
The Nunez decision comes a few months after a separate but similar case, where a jury in Connecticut district court found that Yale University had not breached its duty of prudence to its 403(b) plan and had not failed to appropriately monitor the investment options available to plan participants (Vellali v. Yale University). The decisions underlying these two cases suggest some best practices for 401(k) and 403(b) plan governance.
In deciding whether the plan committee had appropriately selected and monitored investment options, the Nunez court noted that the committee met regularly (annually for some of the applicable time period, and quarterly thereafter), engaged financial advisors who presented reports on the performance of investment options, had an investment policy statement, used a watchlist and removed underperforming funds, and monitored whether to move into lower-cost share classes. With respect to the recordkeeping fees, the Court noted that the committee negotiated lower recordkeeping fees, and used benchmarking and requests for proposals ("RFP") in evaluating the recordkeeper, even changing recordkeepers once during the applicable time period following an RFP. The Court took into account industry trends and standards with respect to plan fees, and noted that the committee acted in line with industry practice.
Committees for both 401(k) and 403(b) plans should review how their own governance practices line up with the Nunez court's decision. Whatever their fiduciary process, they should consistently document it through meeting minutes and the regular update of administrative documents, like committee procedures and investment policy statements.
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