Lawsuits alleging breach of fiduciary duty related to the selection of capital preservation investment options should serve as a caution to DC plan fiduciaries of the plaintiffs’ bar’s growing interest in this asset class, as well as the processes used in selecting and monitoring these options.
A white paper titled “Capital Preservation Product Selection and Monitoring: Prudent Process Considerations” by Groom Law’s Stephen M. Saxon and Thomas Roberts and Kevin Mansfield, National Director for New York Life Stable Value Investments, outlines the issues.
The white paper notes that the lawsuits generally allege that DC plan investment fiduciaries imprudently selected money market funds as investment options for the plan’s capital preservation asset class even though higher yielding stable value investment options were available. However, the authors explain that the sheer diversity of product types available in the capital preservation asset class, and how the investment returns on those products may be affected by how they are bundled together with or unbundled from the cost of plan recordkeeping and administration, is often overlooked.
The whitepaper outlines how to better take these considerations into account through procedural safeguards that plan fiduciaries, their advisors and consultants may wish to add to existing processes for selecting and monitoring capital preservation investment options. The authors also:
- review selection and monitoring processes generally being used today by fiduciaries of 401(k) and other defined contribution plans;
- identify some of the unique characteristics of investment options that fall within the capital preservation asset class and discuss whether those may merit renewed attention; and
- offer some suggestions for potential overlays to existing selection and monitoring procedures with respect to capital preservation investment options.
The white paper is available here.
