The Duty: An ERISA trustee is obligated to know who is being paid what by whom and whether the fees being paid are fair and reasonable. This duty is implicit in the trustee’s duty of prudence under C.F.R. §404a-1 and is specifically required by the U.S.C. §1104(a)(1)(A)(ii).
The Breach: The ERISA plan trustees at Boeing and Lockheed Martin and Fidelity and Aon Hewitt and Verizon and Oracle and Intel and Xerox and many, many other Fortune 500 companies have paid out billions of dollars in settlements or damages arising from ERISA class action lawsuits. The trustees of all these mega plans fell asleep at the switch and approved expensive retail fee agreements when wholesale fees were available. And recently a class action claim was filed against Princeton University making the same claim–excessive fees and below average performance.
The Complaint: The complaints always say the same thing because they are filed by the same class action law firm that specializes in this work: “[Plan Sponsor] selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.”
Wholesale v. Retail: Plan trustees, I’ll break it down for you; PAY WHOLESALE, NOT RETAIL! If you are buying a fleet of 1,000 cars from GM you’re not going to pay retail. If you are buying hotdogs for Dodger Stadium you’re not going to pay retail. If you are buying laptop computers for all the students in a school district you’re not going to pay retail. So why do ERISA trustees keep agreeing to pay retail prices to the investment industrial complex?
Trust but Verify: Do ERISA trustees really think the service providers they are using are going to say, “Hey, ERISA trustee, I think the funds we made available to your participants have above average fees and below average performance!” It’s never going to happen because the vendors (service providers) do not owe any fiduciary duties to the plan sponsors who use them. It is the plan trustees’ job to do this performance and fee investigation. If the investment committee doesn’t have time to do this work or doesn’t have the experience to do it, they should hire a fiduciary governance consultant to do this work. Obviously the current investment consultant is disqualified from reviewing their own work. A performance and fee investigation is fundamental to the prudent administration of the plan.
At Anodos, we help our clients answer the question, “Is my investment manager doing a good job?” Many of our clients are individual trustees, business managers, ERISA trustees and endowment board members who are obligated to independently monitor the activities of the agents to whom investment duties have been delegated. What makes us unique is this is all we do. We don’t manage money, sell insurance, or accept referral fees. We don’t have a horse in the race.
Josh Yager, Esq., CFP®, ChFC®
Anodos helps trustees (ERISA, individual, and endowment) save time, reduce their personal risk, and fulfill their fiduciary duties. We do this by helping the trustee conduct audits of the money managers to whom investment duties have been delegated. Fiduciaries have an affirmative duty to provide ongoing and independent oversight of the money managers. What makes us unique is that we do not manage money or sell insurance. Doing fiduciary audits, benchmarking studies, and performance attribution is all we do.
We do what trustees should do, but don't know how
Anodos develops and maintains an investment governance process for trustees so that their fiduciary duties are fulfilled.