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HomeBlogRetirement Plan Success Series: Part 4: Investment Decisions and Canaries

Kenya, Amboseli National Park, yellow canary or Weaver

“Too many investment options,” “underperformance,” “retail share class,” “inappropriate benchmarks.” This is just a sampling of claims made in a rash of lawsuits filed within the last 60 days against seven major universities.1 And these lawsuit filings are not going to decrease in number or go away any time soon. In fact, they are only getting started. Blain Aiken, executive chairman at fi360 wrote, “Eleven major class-action lawsuits were filed in federal courts around the country… in the fourth quarter of 2015”.2 These are large plans and easily exposed, right? Wrong. In Damberg et al v. LeMettry’s Collision et al,3 the case involves a $9 million plan, and alleges excessive fees, something I wrote about in my last blog.

Plan sponsors and trustees are responsible for major decisions that can have serious consequences for both the plan participants, the employees, and the plan fiduciaries. Through my work, I often see plans that have either a financial advisor with very limited experience advising plan sponsors, or no advisor at all, which is called a “direct” plan.

Plan sponsors and trustees are charged with a great deal:

  • Which asset classes to include or exclude?
  • What investment managers to hire?
  • Whether to have actively managed investment managers, or passive investments that track an index?
  • Do you need to replace underperforming investments that do not beat the index?
  • What are the costs of your selections and who are all of the fees being paid to? Are they reasonable?
  • Do you need the cheapest investment options?

Once these and many more important decisions have been made, you must document your process of how to monitor, replace and add investments on an ongoing basis. We also recommend there be a written policy that the participants can read should they have questions. The Department of Labor will request these documents should you be chosen for an audit,  or worse, the courts will request them should you be named in a lawsuit.

The majority of the time, it is the advisor who specializes with individual clients and treats your retirement plan as though it is no different, or a representative from the recordkeeper who is not a fiduciary to the plan, that is giving you advice about these decisions. This should be the canary in the coal mine to plan sponsors everywhere. You must take this stuff seriously!

There are two primary ways you can help yourself and your employees with investment decisions. The first is to ask your recordkeeper if they partner with an investment firm that offers 3(38) fiduciary services. This service will provide you with a fund lineup, an investment policy statement, ongoing monitoring and investment replacements when needed. These are typically run by national and respected organizations and there is usually a fee attached with the service. The risk is that the decision to hire an investment fiduciary must be as a result of a prudent process and that you have determined they are an appropriate investment manager to your plan. Often you have only one choice from the recordkeeper, and the investment selection is a one-size-fits-all lineup that is not personalized to your employees’ needs.

A second option is to hire a 3(38) investment manager that is independent of the recordkeeper. This option is more custom tailored to your specific plan demographic needs. With this arrangement, a financial advisor will typically sit down with you and discuss the many choices of investment selection, asset class, employee demographics, recordkeeper capabilities and fees for your specific plan. Because there are no ties to the recordkeeper, this advisor should be in a position to provide advice and guidance across all recordkeeper platforms, in the event of the inevitable change that occurs from time to time over the years. There may or may not be a charge for this service, depending on whether or not the advisor is already paid from the plan or the plan sponsor.

At the heart of saving for retirement are the investment options your plan offers to your employees. If the selection is chosen carefully,  if the fees are reasonable and if you have a system of monitoring and replacing when needed, you are most likely providing a good opportunity for your employees to retire comfortably. On the contrary, if you leave this process up to someone who is not acting in the best interests of you or your employees, if the fees are too high and therefore the savings incrementally less, and if there is no documented plan indicating which investment options are appropriate for your employee demographics and when they should be replaced, you are not only hindering your employees’ opportunity to retire with dignity and savings, but you are very likely breaching your fiduciary duty. And this is a decision that only you have control over.

For a no-obligation appointment and a comprehensive review of your plan investment lineup and investment policy, please contact Robert Yelenovsky or call 412-227-3200.

For Plan Sponsor Use Only – Not for Use with Participants or the General Public 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. Blain Aiken and fi360 are not affiliated with Fragasso Financial Advisors or LPL Financial.


1. The New York Times “M.I.T., N.Y.U. and Yale Are Sued Over Retirement Plan Fees” Aug. 9, 2016, and Investment News, “Duke, John Hopkins, UPenn and Vanderbilt latest schools under fire for excessive 403(b) fees” Aug. 11, 2016.
2. Investment News, “Recent class-action surge ups the ante for 401(k) advice,” Jan. 21, 2016.
3.  Investment News, “Excessive-fee suit targeting $9 million 401(k) plan could be ‘harbinger’ for industry,” May 23, 2016

Read more blogs from this series!
Retirement Plan Success Series: Part 1: So you are a fiduciary!
Retirement Plan Success Series: Part 2: Plan Design Matters… a LOT!
Retirement Plan Success Series: Part 3: Retirement Plan Fees and The Matrix