Category Archives: 401(k)

Best Interest Standard of Care for Advisors #15

Best Interest: Rollover Recommendations (Part I)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”


This article discusses how the Care Obligation in Reg BI applies to recommendations to roll over accounts in 401(k) plans to IRAs. When Reg BI applies, beginning June 30, 2020, rollover recommendations to participants in “workplace retirement plans” will be subject to the Best Interest standard.

It’s important to note, though, that Reg BI still permits education and information that stops short of being a recommendation. However, the education and information cannot be a disguised recommendation.

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Best Practices for Plan Sponsors #12

Lessons Learned from Litigation (#5)—The Johns Hopkins Case

This is the twelfth in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.

Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past four plan sponsor posts, Best Practices for Plan Sponsors #8, #9, #10 and #11, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem, Vanderbilt, BB&T and ABB cases. This article—about the Johns Hopkins settlement agreement—is another example of the importance of using appropriate share classes and the monitoring of compensation of service providers . . . and more.

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3 lessons for advisers from 401(k) and 403(b) class action settlements

Fred Reish writes a quarterly column for Investment News. This quarter’s article points out that retirement plan committees rely on their advisers to keep them informed of new developments related to 401(k) and 403(b) plans, including advice about risk management. To help advisers fulfill those expectations, this article discusses the recent settlements in the Anthem 401(k) and Vanderbilt 403(b) cases.

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Best Interest Standard of Care for Advisors #8

Senior Clients: The SEC is looking at practices of RIAs

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the eighth of the series about Best Interest Standard of Care for Advisors.

The SEC has initiated examinations of investment advisers concerning their practices in working with Senior Clients. According to the SEC, a “ ‘Senior Client’ is defined as any retail advisory client who is age 62 or older, retired, or transitioning to retirement, including accounts of deceased clients, and retail clients in joint accounts with at least one individual meeting this definition.”

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Best Practices for Plan Sponsors #7

Plan Success by the Numbers (Part 1)

This is the seventh of the series about Best Practices for Plan Sponsors.

Most companies have budgets for their business operations . . . and then regularly compare budget-to-actual. In other words, they compare their actual expenses to the budgeted amounts to see if they are on track to accomplish their financial goals. That’s pretty standard, and there is nothing remarkable about it. But, why don’t plan sponsors and fiduciaries, for example, plan committees, use that same approach for their 401(k) plans? I have a theory about that. But, before I explain my theory, let me say that I believe that plan committees should have budgets, or goals, and should measure their success in reaching those goals.

My theory is that 401(k) plans don’t set goals for plan success because 401(k) plans were originally viewed as the “employees’ plan.” The idea was that employees could do what they wanted to do, since the plan was a supplemental savings plan. That approach made sense when pension plans were more popular. However, now that 401(k) plans have become the primary retirement plan for most employers and employees, it seems fairly obvious that the burden of success of 401(k) plans needs to fall primarily on employers and fiduciaries.

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Open Questions on Open MEPs

One of the shiny new coins of the 401(k) realm is “Open MEPs.” It’s anticipated that Congress will pass legislation this year that permits Open MEPs. Legislation is needed because of DOL guidance that, in essence, prohibits MEPs that are “open” to all employers. But, what is an Open Multiple Employer Plan? What other kinds of MEPs are there? How do the people that set up MEPs get paid? Here is an article that I, and my partners, Bruce Ashton and Josh Waldbeser, wrote on that subject for ASPPA.
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Best Practices for Plan Sponsors #6

Why Wait Until After You are Sued?

This is the sixth of the series about Best Practices for Plan Sponsors.

I am surprised that, after all of the fiduciary litigation against 401(k) plan sponsors, many plan sponsors and their committees have not taken the basic steps to minimize the risk of being sued, or if sued, of being liable. In most of the settled cases, the plaintiffs’ class action attorneys require that certain conditions—or “best practices”—be adopted by the plan fiduciaries. And, in settlement after settlement, those conditions are, by and large, the same. That raises the obvious question, why haven’t plan committees reviewed these cases and instituted the practices required by the settlement agreements?

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Best Interest Standard of Care for Advisors #7

What Does Best Interest Mean . . . In the Real World? (Part 4)

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the seventh of the series about the Best Interest Standard of Care.

In my last three posts (Best Interest Standard of Care for Advisors #4 and #5 and #6), I discuss the Best Interest standard of care and its practical application. This article discusses a novel approach for compliance with the fiduciary standard for the selection of investments for 401(k) plans. All the more interesting, the approach was part of an opinion of the U.S. First Circuit Court of Appeals.

In October 2018, the First Circuit considered an appeal of a 401(k) case where Putnam Investments, and its fiduciaries, were the defendants. At one point, the defendants argued that, if the court found fiduciary liability under the facts of the case, it would discourage employers from adopting 401(k) plans. The Court of Appeals responded by saying:

“While Putnam warns of putative ERISA plans foregone for fear of litigation risk, it points to no evidence that employers in, for example, the Fourth, Fifth, and Eighth Circuits [which found that similar facts could result in liability], are less likely to adopt ERISA plans.” Continue reading Best Interest Standard of Care for Advisors #7

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Best Interest Standard of Care for Advisors #4

What Does “Best Interest” Mean? (Part 1)

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the fourth of the series about the Best Interest Standard of Care.

“Best Interest” has become part of the American lexicon . . . as an aspirational goal or a demanding standard—depending on the point of view. But, what does best interest mean? It may mean different things to different people . . . and perhaps even to different regulators. However, I believe that most people would agree on the definition in this article.

As I read the guidance issued by the Department of Labor (DOL), the Securities and Exchange Commission (SEC), and New York State, there are actually two different best interests. The first is a standard of care and the second is a duty of loyalty. Of the two, the duty of loyalty is the easiest to define because, in all of the guidance it boils down to a requirement that an advisor cannot put his interest ahead of the investor’s.

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Best Practices for Plan Sponsors #5

Fiduciary Training: The Need for Basics

This is the fifth of the series about Best Practices for Plan Sponsors.

In three earlier posts—Best Practices for Plan Sponsors #2, #3, and #4—about the Sacerdote v. New York University decision, I discussed the good and the bad of the NYU plan committee and made several suggestions about best practices for improving committee performance. This article focuses on one of those suggestions—fiduciary education for committee members.

As a starting point, there is not a legal requirement that committee members receive fiduciary training. Instead, it’s a best practice and good risk management.

But, what should the fiduciary education cover? Based on my analysis of court decisions on fiduciary responsibility, I am worried that fiduciaries may not be adequately educated about their basic responsibilities and particularly their administrative oversight duties. If you look at decisions, such as the NYU case, the issues are basic. For example, one of the defendants did not know if he was still a member of the committee. Another committee member didn’t believe that she was a fiduciary or that she had legal responsibility for the decisions made by the committee. Instead, she thought her role was ministerial, in terms of setting up the meetings and distributing information.

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