ERISA PLAN ADVISOR

What are you watching?

What are you watching?

What are you watching?  I’m not talking about what’s on the television!  I’m referring to your defined contribution plan Watch List.  If your defined contribution plan ERISA advisor is acting as a 3(38) fiduciary, should there be a Watch List for plan investments?

I’ve asked this same question of numerous industry professionals to include plan advisors, recordkeeper wholesalers, defined contribution investment only (DCIO) professionals and ERISA attorneys.  And there is no clear consensus on this issue.

Some of these knowledgeable professionals are of the opinion that the 3(38) advisor has discretion and also bears the risk for investment selection, therefore a Watch List isn’t necessary.  But many still think the Watch List should be used for proper plan fiduciary governance.

Let me state that I have found nothing that requires a plan advisor to utilize a Watch List.  Until this point, I have intentionally avoided the use of the word, “required.”  My opening question intentionally uses the words “should be,” instead of “required,” or “need be.”  That being said, I am of the strong opinion that there “should be,” a Watch List.

The reason there should be a watch list is to facilitate communication between the plan sponsor and the ERISA 3(38) advisor.  Even though the plan sponsor delegates fiduciary duty and discretion to the 3(38) advisor, the plan sponsor still retains the duty to monitor the 3(38) fiduciary.  The Watch List is a very simple and easy way to facilitate the communication necessary to make this happen. If there is no Watch List, then a plan committee needs to consider very closely how this communication is otherwise occurring and is it enough?

I mentioned earlier that there is no clear consensus on this issue.  However. based on my informal poll and questioning of professionals who are knowledgeable on this topic, it does seem to appear a large majority are in favor of utilizing a Watch List.

Blog articles are provided for general information and education and should not be considered a recommendation.  Information provided should not be considered to represent investment, legal or tax advice.

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