Category Archives: 401(k)

Best Interest Standard of Care for Advisors #7


401(k), best interest, fiduciary, plan sponsors, prudent, registered investment advisers

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


401(k), 403(b), best interest, DOL, prudent, reg BI, registered investment advisers, SEC

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.

Continue reading Best Interest Standard of Care for Advisors #4 →

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Best Practices for Plan Sponsors #5


401(k), 403(b), best practices, DOL, fiduciary

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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Best Interest Standard of Care for Advisors #3


401(k), 403(b), best interest, DOL, reg BI, registered investment advisers, SEC

SEC Best Interests . . . When? And What About the DOL

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 third of the series about the Best Interest Standard of Care.

The Regulatory Agendas for the SEC and DOL were recently issued. Both have plans for guidance by September of 2019, but the anticipated timing of the guidance has, by and large, been misinterpreted. To understand what I mean, read on.

The SEC’s Agenda said that Final Action on the Regulation Best Interest proposal for broker-dealers and the Interpretation of Standard of Conduct for investment advisers would be “09/00/2019.”

Similarly, the Department of Labor Agenda said that there would be a final rule on the “Fiduciary Rule and Prohibited Transaction Exemptions” with the date of “09/00/2019.”

Continue reading Best Interest Standard of Care for Advisors #3 →

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Best Practices for Plan Sponsors #3


401(k), 403(b), best practices, plan sponsors, prudent, service providers

What is the Baseline for A Committee to Act in the Best Interest of Its Participants? (Part 2)

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

This is my second article about the case of Sacerdote v. New York University. As I discussed in my last post, the Court’s opinion pointed out the deficiencies in the understandings and conduct of some committee members. However, the Court ultimately ruled in favor of the plan fiduciaries and against the plaintiffs. Why was that?

Continue reading Best Practices for Plan Sponsors #3 →

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Best Practices for Plan Sponsors #2


401(k), 403(b), best practices, fiduciary

What is the Baseline for A Committee to Act in the Best Interest of Its Participants? (Part 1)

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

The recent decision in the case of Sacerdote v. New York University is a classic story of the good and bad of plan committees. Let’s start with the bad.

Five current and former committee members testified at the trial. But not all of the testimony was helpful.

Continue reading Best Practices for Plan Sponsors #2 →

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Best Practices for Plan Sponsors #1


401(k), 403(b), best practices, plan sponsors, service providers

Projection of Retirement Income

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

“Best Practice” is above and beyond the legal requirements. Best Practices are not mandated; they are elected.

While the most obvious Best Practices are automatic enrollment and automatic deferral increases, I want to start with the projection of retirement income for participants. That’s partially because it is in a current legislative proposal—in the Retirement Enhancement and Savings Act (RESA), and also because, in my opinion, it doesn’t receive the attention that it deserves.

Continue reading Best Practices for Plan Sponsors #1 →

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