In the case of White v. Chevron (N.D. Cal 2016), the plaintiffs alleged breaches of its fiduciary duty for not choosing proper investments for plan funds, by choosing to invest in funds that performed poorly, and cost high management fees. The District Court provided key guidance on fiduciary duties under ERISA.
In the original dismissal, the court determined that, under ERISA, the investment decision process is what’s important, not the results of that investment. You can use as much due diligence as possible in choosing an investment, fully investigate the investment on its merits, determine it’s a worthwhile investment, and still have the investment fail. If due diligence could determine which investments would succeed, making money on the stock market would be substantially easier. That’s why the court determined that process, not results, are the important factor in determining whether the fiduciary violated its duty in choosing an investment.
A fiduciary can only be judged based on the information available to them at the time. Just because some information came out later that would have reasonably called an investment into question, does not mean it could have been acted upon at the time. Sure, using hindsight, you may be able to see why an investment failed, but at the time, that information may just have not been available.
It’s also not necessary or even sensible to look over the market to find the cheapest possible funds to invest in. The goal is to find investments with the best balance between fees and return. Those funds with cheap fees might have cheap fees for a reason.
Ultimately, a breach of fiduciary duty involves some imprudence on the part of the fiduciary in their investigation of funds and investments prior to making a poor investment. A breach of fiduciary duty arises if it could have been seen with due diligence at the time of the investment that the investment was fragile and stood a good chance of failing while more prudent investments were available. But an investment merely not providing adequate return on its own does not function as prima facie evidence of a breach of fiduciary duty.
But if you don’t perform an adequate investigation prior to investing plan funds or choosing a poor investment manager, you may be liable as a fiduciary for a breach of your duty. How can you cover yourself in the event of a fiduciary breach? With fiduciary liability insurance!
So who should you reach out to if you would like to purchase Fiduciary Liability Insurance?
Colonial Surety Company is a Treasury Listed surety company providing ERISA fidelity bonds packaged with fiduciary liability insurance and cyber liability insurance. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Dept. of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive bond coverage for the years the plan was not previously covered.
If you would like to learn more about purchasing an ERISA Fidelity Bond, or an ERISA Fidelity Bond package including Fiduciary Liability Insurance, call ERISADept@colonialsurety.com.