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Active Management
Third-party white paper: Active management plays an important role in 401(k) plans
June 28, 2022

The fiduciary duty that applies to qualified retirement plan investment selection and ongoing oversight is one of the most challenging — and misunderstood — responsibilities for plan sponsors.


A new white paper by Groom Law Group (commissioned by Capital Group and available below) may provide some guidance on how to act in the best interest of the plan’s participants, given the backdrop of recent regulatory guidance and court decisions.


Specifically, the paper concludes there is more flexibility for fiduciaries among investment options than some high-visibility lawsuits suggest, provided that the fiduciaries act prudently in selecting and monitoring investment funds. When ERISA principles, U.S. Department of Labor authorities and court decisions are considered, the paper concludes, active as well as passive strategies can serve an important role in a 401(k) plan.


Highlights include:


The active vs. passive debate

  • ERISA makes no distinction between active and passive investments when it comes to the selection and monitoring process.
  • Neither the DOL nor the courts have stated that active strategies are inappropriate for 401(k) plans.

Investment selection

  • Neither ERISA nor the DOL mandate any type of investment as necessarily prudent or imprudent.

Investment results

  • Whether plan fiduciaries acted prudently in making an investment decision cannot be measured in hindsight based on how the investment performed.

Plan fees

  • The relevant facts and circumstances concerning investment-related fees include the expected return that could be achieved for the fees paid.

Recent court decisions

  • Several courts have rejected plaintiffs’ attempt to compare active to passive strategies, ruling that active offers different objectives, risks and potential results than passive.

Learn more about
Active Management
Fiduciary Responsibility

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