Magazine article University Business

Building a Retirement Plan That Withstands Lawsuits: Best Practices for University Fiduciaries Begin with Precise Planning

Magazine article University Business

Building a Retirement Plan That Withstands Lawsuits: Best Practices for University Fiduciaries Begin with Precise Planning

Article excerpt

Recently, plaintiffs' attorneys have brought dozens of lawsuits against universities alleging that their retirement plan fiduciaries breached their duties under the Employee Retirement Income Security Act of 1974 (ERISA). A failure to fulfill fiduciary duties under ERISA can lead to serious consequences, including personal liability under ERISA. There are steps fiduciaries can take to discharge their responsibilities and avoid these harsh results.

ERISA fiduciary duties

Under ERISA, fiduciaries of retirement plans must meet the highest standard of care known in law--the fiduciary duty. This requires fiduciaries to act solely in the interests of participants and beneficiaries--and with care, skill, prudence and diligence.

Fiduciaries must also act for the exclusive purpose of providing benefits to participants and beneficiaries. The best way to do this is to develop and document a process for making the fiduciary decisions.

Best practices begin with well-written, clearly drafted policies and procedures. The plan document should identify who is responsible for particular fiduciary functions. It might, for example, designate the board of directors as a fiduciary, but only to appoint the fiduciary committee established by the plan document.

An investment policy statement should address how the fiduciary committee decides investment issues. It should list investment objectives, asset-allocation policies, diversification approaches, spending policies, procedures for monitoring investments, and what assistance the committee should obtain from third-party advisors.

Failure to comply with written policies alone can be evidence of potential mismanagement. Therefore, policies must be clear, concise and enforceable, unless doing so would violate ERISA.

Training and auditing

Committee members should have diverse backgrounds and areas of expertise. …

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