Reducing Liability—
ERISA does not spell out everything a fiduciary must do
ERISA and related DOL regulations provide for many specific tasks and responsibilities, but also provide for over-arching principals that have broad requirements. The "prudent man rule" and "broad range of investment alternatives" are good examples of concepts that have far reaching impact. To minimize liability under ERISA fiduciaries must not only follow the letter of the law, but must embrace its substance and provide documented context for key decisions. Remember that the fiduciaries' actions will always be judged in retrospect when more information is available than the fiduciary had at the time.
Investment Policy—
Can a Fiduciary be prudent without a Statement of Investment Policy?
Emphatically, no. Fiduciaries must articulate what the objectives are for the retirement plan, what amounts to success in meeting those objectives, what risks are or are not appropriate to take, and ultimately what broad investment strategy or strategies should be offered to plan participants and beneficiaries.
A written Statement of Investment Policy (SIP) is an essential document for trustees to formalize their decisions regarding the investment of plan assets and provides the basis for prudent oversight of and adjustment in the execution of the investment strategy over time.
A Statement of Investment Policy (SIP) should set forth the authority and control an investment manager has over Plan assets.
Particularly for 404(c) Plans in which investment alternatives are identified, the SIP should establish the criteria for identifying and maintaining a mutual fund that is an investment alternative.
The SIP should identify expectations for performance and the benchmarks against which performance shall be measured.
Regular Meetings—
Document everything!
The trustees should hold regular meetings documented with formal minutes (generally quarterly) to review performance against the Statement of Investment Policy (SIP) of the respective appointed investment managers and of each investment option offered by the plan. Activities of other service providers (e.g., TPA, Recordkeeper, ERISA counsel, participant education providers, etc.) should also be reviewed periodically.
The trustees must focus their attention on the value delivered to the participants and beneficiaries ("discharge his duties with respect to a plan solely in the interest of the participants") in terms of the appropriateness of the investment alternatives offered, the relative performance of those options, costs, and services. It is important that the trustees compare the results for their plan against appropriate performance, cost and service benchmarks and then ask the hard questions of their advisors and service providers.
The minutes should reflect the key decisions made and provide the context in which those decisions were made. Having documentation of regular meetings that memorialize oversight undertaken and key decisions made is very helpful when you are subjected to a DOL audit.