The growing threat over retirement litigation has many fiduciaries looking to outsource plan investment responsibility.
The number of Employee Retirement Income Security Act (ERISA) lawsuits grew in 2020, and that momentum is not likely to slow down in 2021, according to experts.
In some cases, fiduciaries can be held personally liable for losses caused by their fiduciary breach. ERISA attorney Carol Buckmann said advice from retirement plan vendors about investments “is not fiduciary advice required to be in their best interests.”
Buckmann, a co-founding partner of Cohen & Buckmann law firm in New York, wrote a timely blog about why fiduciaries should consider outsourcing their investment responsibilities to an investment manager or outsourced chief investment officer (OCIO).
A survey by the investment consulting firm Callan found that 21.6% of respondents hired an investment manager described in Section 3(38) of ERISA, up from 15.9% in 2018.
As Buckmann writes, ERISA provides a path for fiduciaries to reduce their risk:
However, ERISA provides two mechanisms for company fiduciaries to actually pass on most of their responsibility and potential liability. The first is if a bank, insurance company or registered investment adviser agrees to assume responsibility for investment decisions as an investment manager and acknowledges fiduciary status in writing as required by Section 3(38 ) of ERISA. If the company fiduciaries prudently select and oversee the manager, the manager, not the company fiduciaries, is responsible for day-to-day investment decisions. Section 402 of ERISA also permits the company fiduciaries to delegate investment responsibilities to a “named fiduciary” pursuant to their plan documents. Some OCIOs prefer to be a named fiduciary for investments.
Neither of these choices delegates 100% of fiduciary investment responsibility, but they delegate most of it.
Read the full blog post “Pass It Forward-Why Fiduciaries Should Consider Outsourcing Plan Investment Responsibility” for more on the OCIO trend.
Chivaroli and Associates Insurance Services is a full-service brokerage firm specializing in the custom-design and placement of insurance and alternative risk funding solutions for your healthcare organization.