For years, retirement plan fiduciaries have been told that investment decisions should follow a prudent, repeatable and defensible process.
I agree. That principle sits at the center of how I manage retirement plans.
But a recent healthcare-plan lawsuit raises a broader question: Is documenting the decision-making process enough, or must fiduciaries also prove that every organization receiving plan-related compensation is necessary and reasonably paid?
The case involves JPMorgan Chase’s prescription-drug program, not its 401(k) plan. Nevertheless, the legal argument reaches across the ERISA landscape. Following the Supreme Court’s decision in Cunningham v. Cornell University, a fiduciary may need to do more than demonstrate that an orderly process occurred. When plan assets are used to pay a service provider, the fiduciary may also need to establish that the service was necessary and that the compensation was reasonable.
That distinction matters.
How I Approach Investment Selection
I begin with a written, repeatable process. Investments are evaluated against relevant measures, comparable alternatives and the role they are expected to perform within the plan.
Performance matters, but it is not considered alone. I also examine expenses, management, risk, consistency, organizational changes and whether an investment continues to serve the purpose for which it was selected.
The process does not promise that every investment will outperform. ERISA does not require clairvoyance. It requires care, judgment and continuing oversight.
I primarily use institutional or R6 share classes. These shares typically do not include revenue sharing, although that assumption must still be verified for each investment. Removing revenue sharing helps separate the cost of investment management from the cost of administering the plan.
That makes the arrangement easier to understand—and easier to defend.
Independence Must Be More Than a Statement
I am not paid by the investment companies selected for a plan.
My compensation does not increase because a participant chooses one investment rather than another. I receive no additional compensation if participants select a particular fund, investment manager or portfolio.
I am agnostic about which investment a participant chooses. My responsibility is to help the plan sponsor construct and oversee a prudent investment menu, then help participants understand the choices available to them.
That separation matters because financial incentives can quietly influence recommendations. A process cannot be fully evaluated without asking who is being paid, how much they are being paid and whether that compensation changes depending upon the decision made.
Outside Specialists Receive the Same Scrutiny
At times, I bring in specialists such as QBOX or HIP Investor to assist with a particular need. Their involvement does not place them outside the fiduciary process.
The same questions apply:
- What service is being provided?
- Why does the plan need it?
- How was the provider evaluated?
- What does the provider receive in compensation?
- Is that compensation reasonable?
- Are there conflicts or financial relationships that could influence the recommendation?
- Is the provider delivering the value that justified its selection?
Using a specialist does not transfer away the responsibility to evaluate the specialist. Expertise may be necessary, but it is not self-validating.
I receive no compensation from these organizations. I select them because I believe their services can help a particular plan—not because their involvement creates income for me.
Follow the Money
Investment committees frequently spend considerable time discussing performance while giving much less attention to compensation.
That order should be reversed more often.
A fund may appear inexpensive while generating payments elsewhere in the arrangement. A managed account may add a second layer of cost. A recordkeeper may receive revenue sharing through the investment menu. An outside service may look reasonable when examined alone but become expensive when every payment is added together.
The relevant question is not merely, “What is the expense ratio?”
It is:
Who receives money because this investment or service was selected, how much do they receive, and what value does the plan obtain in return?
A fiduciary file should contain an answer.
Process and Substance
A carefully prepared meeting agenda does not prove that compensation was reasonable. An investment policy statement does not eliminate a conflict. An RFP does not establish value unless its results are understood, compared and acted upon.
Process matters because it shows how a decision was reached. But the substance of the decision still matters.
My own process therefore rests on several separations:
- Investment expenses are separated from plan-administration expenses whenever possible.
- Outside providers are evaluated independently.
- My compensation is not tied to the investment selected.
- Participant choices do not determine what I am paid.
- Compensation and conflicts are examined alongside performance and risk.
- Every investment and service remains subject to continued review.
None of this makes a retirement plan immune from litigation. That is not a realistic standard. The goal is to make each decision understandable, supportable and aligned with the interests of participants.
The Parting Glass
A defensible process should do more than produce a thick file of meeting minutes.
It should tell a coherent story:
This service was needed. This provider was qualified. This compensation was reasonable. These conflicts were identified. These alternatives were considered. This decision benefited the plan and its participants.
Prudence is the foundation. Loyalty determines whose interests come first. Independence helps ensure that the two are not quietly undermined by compensation.
The best fiduciary process does not merely document what was done.
It makes clear why it was done—and who benefited.