Employer sponsors of 401k plans and any employer-based fiduciary investment committees need to consider taking steps now in response to the realities of the coronavirus (COVID-19) pandemic, according to Jordan Schreier of Detroit-based multi-specialty law firm Dickinson Wright.
Schreier, a member in Dickinson Wright’s Ann Arbor office and chair of the firm’s Employee Benefits and Executive Compensation Practice Group, provided the following recommendations for plan sponsors in a recent blog post on the company’s website:
- Confirm Continued Availability of Service Providers: Be in constant contact with the plan’s service providers including recordkeepers, trustees, investment managers, investment advisors, attorneys, and accountants and obtain confirmation on how each is planning to continue to provide required plan services during the pandemic, particularly for businesses that are requiring their employees to work remotely. Some recordkeepers have already notified employers that they have increased staffing to respond to higher telephone call volumes.
- Educate and Communicate: Recordkeepers and investment advisors across the 401k industry have been producing educational and communication material designed to help participants understand the recent market downturn, market volatility, the historical benefits of long-term investing, and how to use plan services and features (e.g., rebalancing). Employers should take advantage of these materials. As part of this process, employers should review their recordkeeper and investment advisor contracts to make sure they are receiving all contracted for educational and communication services, and understand the availability and cost of additional services such as communications customized to the employer’s specific plan participant needs.
Jordan Scheier - Advise Participants to Seek Professional Guidance: Summary plan descriptions and plan investment material often advise participants to consult with their personal tax and financial advisors before selecting or changing investment funds. This is a good time to include in participant educational material a reminder that their own advisors can be a good source of information, guidance, and reassurance. Remind plan participants of the availability of managed account or managed advice services under the plan, if applicable. This is also a good time to make sure that electronic disclosures comply with Department of Labor regulations and that the plan has good addresses for participants for whom electronic disclosure is not permissible.
- Monitor Plan Investment Alternatives: Review each investment alternative under the plan with the plan’s investment adviser, either at the next quarterly meeting or, even better, at a specially called interim status call. Under ERISA, a fiduciary must act as a prudent expert would in similar circumstances. This includes prudently monitoring existing investment alternatives under the plan. We have learned that a common allegation in a large number of fee and investment fund related breach of fiduciary duty lawsuits over the past decade is that fiduciaries failed to replace underperforming investment funds. Depending on the length and severity of the market downturn, there is every reason to think that these types of lawsuits will continue, with fiduciaries facing allegations that they should have replaced select investment funds with other funds that lost less in the market. Extra due diligence such as interim calls with the plan’s investment advisor, calls with investment managers, deeper market analysis, etc., is part of prudent fiduciary action and could be helpful in the event of future lawsuits. Fiduciaries should carefully document their decision-making.
- Deep Dive on Stable Value Funds: For plans with stable value funds, fiduciaries should perform extra diligence on the financial status of the stable value fund issuer (e.g., an insurance company) and the stability of any wrap insurance protection. The plan’s investment advisor should assist with this review.
Despite that these are difficult and in many respects, unprecedented times, we take some comfort in the old saying, “this too shall pass.” Nevertheless, plan fiduciaries who take prudent action now may help things pass just a bit more easily, Scheier concluded.