Managing a Retirement Plan Doesn’t Have to Be a Headache

By: Mitchell Shames

COVID-19 wreaked havoc on our economy. Customers vanished and supply lines evaporated, as employees adjusted to a new paradigm of working from home. Wild swings in securities markets were a symptom of the pandemic. C-suite executives, who also found themselves working remotely, are still being pulled in multiple directions. 

Among the hardest-hit industries have been retail, oil & gas, hospitality and travel. In the past year, we’ve seen top national brands such as J.Crew and Neiman Marcus seeking reorganization under Chapter 11. There were many others.

As C-suite executives seek to hammer out deals with creditors and develop post-bankruptcy business plans, they ignore their retirement plans at their peril. The unprecedented volatility that afflicted most all asset classes in the wake of the pandemic, has challenged many long-held assumptions and industry norms. The task of overseeing a qualified retirement plan is getting more and more complicated and burdensome. Companies that choose to fulfill this task internally, are diverting managerial energy and resources from the vital task of executing revised business strategies. As the investment landscape has become more and more complex over the years, retirement plans have become a distraction from the task at hand: survival.

Executives don’t have to be shackled to these distractions, however. ERISA neither requires, nor mandates, that plan sponsors manage or engage in continuous oversight of their plans. In fact, ERISA allows for enormous flexibility in the management and oversight of retirement plans. There is no requirement in ERISA that corporations or committees of a corporation, serve as the fiduciaries of their plan. So, why does the current model of retirement plan management continue to embroil corporate managers?

While it’s true that ERISA allows for great flexibility, it is nonetheless also true that ERISA is a demanding task master. Hundreds of pages of regulations and 40 years of case law call for and require heightened expertise and compliance. While government enforcement lies with the Department of Labor (DOL), an active plaintiff’s bar continually scans the horizon looking for lucrative class action lawsuits. These lawyers are sophisticated and diligent. They are also fiercely determined.

A clean and elegant solution lies close at hand. Corporate managers can easily remove the retirement plan albatross from around their necks.

Plans can simply delegate fiduciary responsibility to an independent fiduciary firm. Professional fiduciaries whose core competency and expertise lies in the oversight and management of qualified retirement plans will exercise best fiduciary practices, thereby assuring compliance with ERISA. In the context of a Chapter 11 reorganization (or in the pre-petition planning stages) there is no justification for C-Suite executives to retain either these responsibilities, or the potential exposure to personal liability associated with serving as an ERISA fiduciary.

This solution is not to be confused with the suggestion that certain corporate functions be merely “outsourced.” Property management, information technology, and various accounting functions can be performed by others in exchange for a fee, and corporate management can rely on this. However, the designation as a fiduciary is a delegated responsibility which carries with it certain statutory obligations imposed by ERISA. A fiduciary has discretion to exercise authority over a plan and is charged with a duty of loyalty to the plan participants, effectively precluding the fiduciary from engaging in acts of self-dealing or conflicts of interest. Importantly, fiduciaries must act as prudent experts and failure to meet these fiduciary standards can result in personal liability. No “outsourced” function carries this weight of responsibility and personal exposure to liability.

All of this brings us to the fundamental question: Why take the risks inherent in this widely accepted, old school, model of retirement plan management and oversight? This model has been broken for decades. It doesn’t serve plan sponsors, and it doesn’t serve plan participants. A new model of delegating plan oversight, management, responsibility and risk, to an independent fiduciary, benefits everyone involved.

We’ve recently lived through a global crisis that threatened the very existence of many corporations. It would be naive to think it will be our last. Our changing times demand an innovative response. An attitude of “but, we have never done that before” is simply a luxury of the past which can no longer be indulged. Every professional hour devoted to retirement plan oversight, is one less hour devoted to executing corporate strategy.



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