GuidePost - 2005 Holiday Edition

The GRABot BAG
by Sherrie E. Grabot, CEO

December 2005
Our Holiday Gift: A New White Paper

Welcome to the Holiday edition of GuidePost. This year we have a present for you: A brand-new white paper about one of our favorite subjects, (really!) fiduciary responsilbility.

We've been talking about the "true" meaning of fiduciary responsibility for a long time. But while we may be experts on K plan investing, we're certainly not lawyers. So to help enlighten our clients, our friends, and the industry (not to mention ourselves), GuidedChoice commissioned a white paper on the subject from one of the country's foremost ERISA attorneys, Fred Reish of Reish Luftman Reicher & Cohen. You can register to get a copy here.

The new white paper, Participant Investing: The Future of Fiduciary Responsibility, clearly describes the legal burden ERISA imposes on fiduciaries. This duty "has been described as the highest known to the law, that is, the duty to act prudently for the exclusive purpose of providing retirement benefits." Reish describes how the trend toward employees financing their own retirements, combined with the well-documented failure of many to do so effectively, puts fiduciaries in a perilous position.

The reality of prudence
Much of the difficulty stems from the so-called "prudent man rule." Reish argues that this truly amounts to a "prudent expert rule", requiring that fiduciaries must serve the needs of participants at the level of well-informed, dedicated investment experts. This duty extends to the vendor selection process, ongoing monitoring, and ultimately to the success or failure of the plan - in practical terms of helping participants build adequate retirement savings.

We all know what that demands these days: Some type of managed account solution, or at least effective investment advice. So in conclusion, Reish presents a practical, detailed outline of how to choose and monitor a service provider, with an eye toward meeting every aspect of fiduciary responsibility at a scrupulously high level of prudence.

I strongly believe everyone in this industry should read this document. It provides an excellent primer on fiduciary responsibility in a fast changing environment. At the very least, it's a good outline of how to "do the right thing" for plan participants. And when actual practice starts to catch up with the rather strict requirements of ERISA law (as many of us believe it soon will), knowing the rules may help avoid unpleasant legal surprises down the road.

About the authors
Participant Investing: The Future of Fiduciary Responsibility was written by Fred Reish and his colleague Bruce Ashton, both of Reish Luftman Reicher & Cohen, Attorneys at Law. The Los Angeles-based firm offers a full range of services, with major specialties in employee benefits, employee relations, ESOPs, and ERISA counseling and litigation. For more information - and to subscribe to their free newsletter on retirement plans and employment law - please visit their site at www.reish.com.

~~ Sherrie