When “Set It and Forget It” Becomes a Liability

The first few months of 2026 have been a raucous start for fiduciaries of retirement plans. In January, a $70 million ERISA class action was filed against Bloomberg’s 401(k) alleging that the New York-based company failed to remove two underperforming funds from its plan. The suit claims the Harbor Capital Appreciation Fund lagged its benchmark for 16 years, and the Parnassus Core Equity fund underperformed for a decade, resulting in plan participants possibly losing millions in retirement savings.

This case also reflects a broader trend. Recent suits against plans using the American Century One Choice target-date fund allege the same core issue: fiduciaries waited too long to act on persistent underperformance, resulting in significant participant losses.  These lawsuits come off the heels of 2025¹, filed alleging ERISA violations. So clearly, scrutiny of fiduciary duty is very much part of the landscape, which should give pause to any of us who shoulder ongoing responsibility for managing the investments in plans.

I can’t say what happened at Bloomberg or with the plans using the American Century fund—we’ll have to wait for details to come out over the next few months. It’s possible that Bloomberg and these other plans had good reasons to leave these allegedly underperforming funds in the lineup. But what I can say is extended stretches of underperformance bring the importance of a rigorous, prudent monitoring process into sharp focus. And these situations remind us how demanding this work really is, even for large plans with sophisticated investment committees.

So, the real question becomes, how do fiduciaries, both large and small, meet these demands?

Fund Monitoring is Harder Than We Want to Admit

There’s always so much focus on the initial construction of a plan’s lineup—and rightly so. It’s a complex, nuanced process shaped by the characteristics of a plan population. It’s not an exact science either, which makes clear documentation and a rigorous, repeatable methodology incredibly important.

“Ongoing monitoring is a perpetual, resource-intensive, and high-stakes process. And getting it wrong can significantly impede a participant’s ability to achieve a successful retirement.”

But, once the lineup is built, that doesn’t mean the hard part is over. Ongoing monitoring is a perpetual, resource-intensive, and high-stakes process. And getting it wrong can significantly impede a participant’s ability to achieve a successful retirement.

An advisor serving as fiduciary to a plan is not only responsible for this ongoing fund monitoring but also faces competing pressures.  They are often juggling multiple clients, navigating each one’s particular needs. Then there are the plans themselves; plan sponsors may have their own unique wants that advisors need to navigate, such as a particular attachment to a certain fund or a desire to chase returns rather than focus on a track record. There is also the issue of what the funds and share classes the recordkeeper makes available to the plan and its advisor, which can differ based on the size of the plan. With these competing pressures, ongoing maintenance can feel like another headache.  

How Long is Too Long?

Ongoing monitoring is rarely as simple as seeing that a fund is trailing its benchmark and deciding to pull the plug. Even with a clear evaluation framework in place, there’s a surprising amount of nuance that makes this work far more of an art than a science.

For starters, not all underperformance is viewed equally. A fund can lag its benchmark and still be doing exactly what it’s designed to do. A fund’s underlying strategy (i.e., what it prioritizes and how it’s positioned in the lineup) can meaningfully affect when and how it performs. Two funds living in the same Morningstar category, for example, may behave differently depending on what they emphasize. That’s why our team looks not only at returns but also deeper measures like upside and downside capture ratios, which help reveal whether a fund is performing the way we’d expect in rising or falling markets. These metrics span many months of results, which helps avoid relying on simple trailing returns or falling into recency bias.

Time horizon matters too. A single bad quarter—or even a rough year—isn’t enough to constitute “persistent underperformance.” In general, when we see more than a 12‑month stretch of unusual lagging, the fund goes on watch. From there, we take a measured, structured approach where we dig into what’s driving the underperformance, evaluate whether the behavior aligns with the fund manager’s stated process, and assess whether the performance is explainable, expected, or a sign that something has meaningfully changed. We talk directly to the managers to understand how they view the situation and ask what steps they’re taking if the performance stems from missteps.

A big part of avoiding mistakes is resisting the temptation to react too quickly. Removing a fund prematurely can introduce needless disruption, and you run the real risk of performance chasing. The industry has seen periods where strategies that looked fantastic at first glance or in a given bull market were masking serious risks beneath the surface. Replacing a struggling fund with whatever’s currently in vogue can backfire quickly when the market cycle turns.

That’s why we anchor our decision‑making in the long view. We want to understand not only a fund’s historical track record but also its forward‑looking prospects: who’s running it, how disciplined the process is, what environments it tends to outperform in, and what kinds of periods typically challenge it. We break long time horizons into multiple five‑year stretches to understand consistency rather than relying on any single trailing period. And we cross‑check whether a fund is delivering the kinds of results we’d expect given its mandate—especially in markets where their approach should shine.

The truth is that underperformance becomes concerning when it’s both persistent and unexplainable. When the story no longer lines up with the process, when the results don’t match the environment, or when the manager can’t clearly articulate how they plan to course‑correct—that’s when it’s time to act. But until then, the job is to take a thoughtful, measured approach that balances patience with prudence.

Morningstar’s Approach to Strong Monitoring

While evaluating underperformance requires nuance, the harder part for many advisors is maintaining the structure and consistency needed to make those evaluations reliably. That’s where a dedicated process becomes essential. At Morningstar Retirement, we’ve provided 3(38) and 3(21) fiduciary services to plan sponsors for more than two decades. Throughout that time, we’ve built a monitoring approach that combines disciplined quarterly reviews, a clear escalation path if things look awry, and a team whose sole job is to translate market and manager behavior into practical recommendations. It’s the kind of operational rigor that’s difficult for many advisors to replicate across all their plans while managing day‑to‑day client responsibilities.

But even the best analysis isn’t the whole story. Real‑world plan dynamics can complicate clean decision‑making, such as when plan sponsors feel strongly about keeping certain funds. A plan’s attachment to a fund’s reputation or past success can make the conversation about underperformance far more delicate than technical. Or, on the flip side, a plan could react to short-term underperformance and want to swap less well-vetted funds in an effort to chase returns. In those moments, an independent and neutral third party can add value by providing objective data, documenting the rationale behind recommendations, and helping to navigate emotionally charged conversations without jeopardizing the advisor’s relationship with the client.

At Morningstar Retirement, we like to think of our fiduciary services as an extension of the advisor. We help them deliver a documented, prudent monitoring process that we’ve honed for more than 20 years. Our dedicated investment team provides ongoing lineup reviews, watching for underperformance, manager changes, category-specific volatility, and more. This human layer provides the nuance required to judge exactly when to remove a fund without disrupting the plan.

We also provide neutral recommendations, fund memos, and clear communication to equip advisors with everything they need to support their decisions. The work is demanding, but it’s work we take pride in because we know the value it brings. Namely, stronger lineups, less risk, and more time for advisors to focus on their clients and their business.

That combination of a rigorous process plus an independent perspective is often what ensures prudent decisions don’t get derailed. And in a landscape where fiduciary scrutiny remains high, it gives advisors support where they tend to need it most.

Navigating Today’s Landscape

“The Bloomberg lawsuit and others are a stark reminder that monitoring and prudence aren’t optional—they’re foundational.”

The Bloomberg lawsuit and others are a stark reminder that monitoring and prudence aren’t optional—they’re foundational. For advisors who want to build better lineups for both their clients and themselves, the path forward is clear. They need to maintain a disciplined monitoring process, establish clear criteria for watch and removal decisions, build safeguards that ensure nothing slips through the cracks, and apply that level of rigor consistently across every plan they oversee.

That’s no mean feat. But you don’t have to shoulder it alone. With lawsuits around fund performance and fees in the retirement space showing no signs of abating, working with an experienced fiduciary services provider like Morningstar Retirement can give you the oversight and structure today’s retirement plans require.

All so advisors can focus on what they do best: serving their clients.

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[1] Encore Fiduciary. “ERISA Fiduciary Litigation in 2025,” 2026. ERISA Fiduciary Litigation in 2025: Plaintiff Law Firms Continue the Frenetic Pace, With Broader Allegations Against Both Retirement Plans and Health Plans – Encore Fiduciary

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