Case Study: Healthcare Client
The Risks of Going It Alone
A medical clinic in the Northwest approached Bidart & Ross with the challenge of helping their plan committee get its collective arms around the fiduciary responsibilities that come with being a retirement plan sponsor. In particular, the investment committee was concerned that their decision-making process for selecting and monitoring plan investments would not stand up to outside scrutiny.
We informed the committee that their concerns were not unwarranted. In fact, under the Employee Retirement Income Security Act of 1974 (ERISA) plan sponsors and their fiduciaries have a legal responsibility to conduct an “independent investigation” of the plan’s investments, services and costs. Simply put, the committee needed to complete quantitative and qualitative analysis when selecting plan investments and providers; they needed to understand and evaluate the expenses charged for those investments and services; and they needed to monitor the investments and service providers on an on-going basis. This investigation and analytical process is commonly referred to as “procedural prudence.”
Upon learning that Bidart & Ross’s services include investment selection and monitoring, plan governance support, participant communications support, and ERISA 404(c) compliance support the committee was relieved to find that they had turned to a qualified source for advice.
Action: Established Fundamental Foundation For Formalized Decision-Making Process
In consultation with Bidart & Ross, the investment committee undertook the following actions to improve their decision-making process.
- Bidart & Ross drafted an Investment Policy Statement (IPS) to guide the committee, which helped establish criteria for the selection and monitoring of investments
- Using the IPS, a comprehensive quantitative and qualitative review was conducted to evaluate risks and opportunities in the plan’s investment menu
- Based on our findings, several investment fund manager searches were completed to fill gaps in the plan’s menu and to replace underperforming funds
- Notices were drafted to inform participants of changes to the investment menu and to inform participants of how balances in funds that were to be eliminated would be “mapped” to new funds
- Quarterly meetings were held and investment monitoring reports furnished by Bidart & Ross
- An agenda was adopted for quarterly meetings that addressed both investment and compliance issues
- Primary 404(c) diversification and participant notification requirements were reviewed for compliance
- Each of the preceding actions was thoroughly documented in formal reports, participant notices or in the committee’s meeting minutes
Results: Solid Foundation Protects Fiduciaries, Provides Firm Decision-Making Footing
Prior to our engagement, the committee, which was composed of management and a handful of the doctors, had never conducted a thorough analysis of plan investments. Investment choices were made with little investigation, which exposed committee members to personal liability for their investment choices. Our ability to bring investment expertise, structure and proper documentation to the decision-making process provided a number of immediate benefits to the committee:
- First, procedural prudence was established, without which fiduciaries remain vulnerable to a later claim that they acted inappropriately when making decisions for the plan
- Second, the committee reduced their legal liability for selecting, monitoring and replacing (when necessary) the plan's investment options.
- Finally, the committee ensured that the plan (and therefore the plan's participants and beneficiaries) received investment advice with legally meaningful accountability
FINE PRINT:
Please Understand:
Due to the confidential relationships we enjoy with our Clients, only broad industry categories are used in these Case Studies. However, all Case Studies are based upon factual events and results attained with Bidart & Ross Clients.