401(k), Fiduciary

Staying out of trouble as a fiduciary

To avoid fiduciary breach claims due to costs, there are several things an investment committee can do to avoid being dragged into court by their participants. 1) Make certain your investment committee is proactive and members either have the expertise to perform or engage those that do. The reality is all fiduciaries have potential liability for the actions of their co-fiduciaries. Plus committee members are considered ERISA fiduciaries—and as an ERISA fiduciary, the liability is personal and that includes those who have the power to appoint ERISA fiduciaries. 2) Have regular meetings such as quarterly with a prudent process that is structured and includes notes. Minutes provide a sense of the environment at the time decisions were made, the alternatives presented, and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted—properly documented, of course.

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401(k)

The benefits of a US total market index fund

In addition to the low costs, the US total market index funds offer broad diversification. While asset allocation “experts” will say that you need a separate asset class sleeve for US Large, Mid, and Small Cap stocks in your asset allocation approach. The reality is Harry Markowitz, Nobel laureate for Modern Portfolio Theory, said unless you have a clear return expectation about each distinct asset class and/or the asset classes are not highly correlated then it’s not appropriate to separate out the asset classes. If you need proof then read his paper, Portfolio Selection. The specific advantage of the US total stock market index fund is that it is heavily weighted by mega/large US companies that have a global reach. In fact, 40% of mega/large US company sales are in international markets. There is your international allocation.

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