Recent Department of Labor (DOL) emphasis on fees combined with numerous 401(k) plan fee-related lawsuits have led some plan fiduciaries to question whether offering actively managed funds is riskier than passive funds that are typically less expensive.
Groom Law Group, a leading ERISA firm, has concluded that passive strategies do not reduce fiduciary liability:
- ERISA does not mandate, and the DOL has not opined, that any particular investment strategy is prudent or imprudent.
- No court has ruled that actively managed funds are inherently less appropriate for 401(k) plans than passively managed funds.
- Excessive fee litigation has been about whether less expensive alternatives exist for the same investment strategy, a claim that could be made regardless of whether the strategy used is active or passive.
- Plan fiduciaries may reasonably conclude that a particular actively managed fund could be expected to deliver better investment results net of fees.
- Plan fiduciaries may consider other relevant facts, including that actively managed funds do not need to “track” an index down in a bear market.
- Plan fiduciaries who prudently select and monitor an investment fund are not liable for any loss or underperformance of the fund.