Retirement Plan Fiduciary Considerations in Context of COVID-19

To comply with ERISA, retirement plan fiduciaries are required to act with “care, skill, prudence and diligence under the circumstances then prevailing.” The COVID-19 pandemic certainly presents a unique set of circumstances, with a stock market downturn not seen in 12 years, mass layoffs and furloughs, business closings, and a dramatic shift in how work gets done.

Retirement plan fiduciaries are undoubtedly concerned about the effect of all the changes brought about by the pandemic and its effect on society and the stock market. Conducting a comprehensive review of a plan’s investments, fees, and performance is in order, with an eye to avoiding litigation. Here are some considerations for fiduciaries navigating their duties in the wake of COVID-19:

Assess preparedness of investment managers/consultants.

Now is a good time to check in with the plan’s service providers to assess their ability to perform during the economic disruptions caused by COVID-19. Fiduciaries need to ask investment providers how they are operating during quarantine periods and/or with a reduced workforce. They also need to monitor a provider’s ability to continue investment-related operations during current and future periods of disruption.

Identify potential litigation risks.

Current trends in retirement plan litigation provide fiduciaries with a target list of things to watch closely to mitigate risk. Litigation involving excessive fees is not likely to slow because of COVID-19, nor are lawsuits tied to target-date funds in 401(k) plans, a popular target for plaintiffs’ attorneys. Target-date funds lost significant value during the 2008 financial crisis, and they may suffer a similar fate in 2020 due to COVID-19.

Evaluate options for capital preservation.

While participants in defined contribution plans are investing for the long-term, there may be a group of participants who are nearing retirement that have a need to preserve the value of their investments. Market volatility can have a severe negative effect on these participants, so fiduciaries may wish to review their investment options to determine if they offer a sufficient opportunity to preserve income.

Engage and educate plan participants.

In a volatile market, plan fiduciaries and plan participants both will benefit from an effort to educate participants to equip them to make decisions that best fit their investment and retirement goals. Fiduciaries should ensure that participants are kept fully informed about their options — including the value and risks associated with each one — by engaging them through online presentations and educational literature as part of an outreach initiative.

Adhere to the plan’s investment policy statement.

Fiduciaries often run into legal compliance issues when they make changes to a plan’s investments that deviate from the investment policy statement. Now is probably not the time to make significant changes to a plan’s investment lineup. Fiduciaries should focus instead on monitoring current investments and ensuring that they are following a prudent process for evaluating those investments.

Our ERISA attorneys work with clients in 30 states to set up and monitor benefits plans, make changes as necessary based on business realities and changing laws, and help handle problems when they occur. Reach out today; call678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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