Employee Benefits Attorney Explains 401(K) Fiduciary Reviews

Under ERISA § 3(21)(A), discretionary management or administrative authority can create fiduciary status. Control over plan assets can do so even without discretion. Establishing or amending a plan is generally a business decision; selecting investments for it is fiduciary conduct. A named fiduciary and someone exercising functional control may both carry legal duties. This distinction guides responsibility under ERISA law.

Review the plan document, appointments, committee charter, and provider contracts. Identify who selects funds, approves fees, and can replace providers. HR staff arranging meetings may not be investment fiduciaries; executives exercising discretion may be. Properly appointing an investment manager can transfer investment discretion, but the appointing fiduciary must prudently select and monitor that manager. The review should identify who receives reports and investigates emerging concerns.

Compare options with similar objectives, risks, and time horizons. Review expense ratios, benchmarks, strategy changes, and each fund’s role in the menu. A cheaper fund may carry different risks. Explain why the committee selected or retained an option instead of merely rating its performance satisfactory. For a proposed replacement fund, compare how its fees and risk exposure would affect participants.

Review reports at intervals suited to the plan and investigate material changes in performance, fees, or strategy. ERISA sets no universal quarterly committee schedule. If an option remains despite concerns, minutes should identify the evidence, alternatives, reasons, and next review date. A period of weak returns may merit investigation without requiring an automatic sale.

Give competing recordkeepers identical participant counts, asset figures, and service requirements. Compare administration, participant support, cybersecurity practices, reports, and termination charges. Separate bundled costs from extra fees and determine whether the employer or participant accounts pay them. Asset-based, per-participant, and transaction fees can produce different costs as enrollment changes. A higher-priced provider may be reasonable when the committee records why its services justify the cost.

Under 29 C.F.R. § 2550.408b-2(c)(1), covered providers must disclose specified services and compensation in writing. Check revenue sharing, affiliate payments, and other indirect compensation. Match disclosures against contracts and invoices. Coverage depends on the plan and provider, not merely the vendor’s title. If required details are missing, request them and follow the applicable regulatory procedures.

Examine affiliate payments, referral arrangements, and decision-makers with provider ties. Determine whether the counterparty is a party in interest and whether the transaction implicates plan assets or fiduciary authority. Disclosure or recusal does not independently exempt a prohibited transaction. Record the ownership and compensation ties even when the committee concludes that an exemption is available.

ERISA § 408(b)(2) allows certain necessary services under reasonable contracts for reasonable compensation. This exemption covers specified § 406(a) transactions, not fiduciary self-dealing under § 406(b). An employee benefits attorney can assess the arrangement and applicable exemption conditions. A provider’s claim that fees are standard is insufficient. The committee should determine whether any different statutory or class exemption applies before proceeding.

Organize evidence by decision, including:

• Authority: Appointment documents and committee responsibilities.
• Investments: Comparable fund data, benchmarks, and follow-up reports.
• Fees: Competing proposals, disclosures, contracts, and invoices.
• Decisions: Minutes showing questions, reasons, assigned actions, and dates.

Record the reviewers, unresolved questions, and reasons for retaining each option. A brief explanation of competing evidence is more useful than a one-line vote.

Unexplained fee increases, missing disclosures, and recurring investment concerns warrant investigation. Assign follow-up, obtain records, and consider independent review before renewing contracts. Potential breaches may lead to separate ERISA fiduciary litigation, distinct from individual benefit claims. Close follow-up assignments only after the committee evaluates the responses. Fiduciaries should be able to explain what they knew, checked, and decided.