I am a real big fan of this article here, on two recent rulings in major excessive fee 401(k) lawsuits, one against Wal-Mart and the other against Bechtel. While I haven’t read the rulings in those cases themselves yet, what I like about the rulings, at least as depicted in the article, is that they apparently did not focus on the actual amount of the fees, but rather on the process used by the defendant companies in selecting them, to decide whether the amount of fees attached to the plan’s investment options violated fiduciary obligations. As the article sums up the rulings:

The details in the recent rulings in the Wal-Mart and Bechtel suits vary, but both cases offer a reassuring message to large corporate plan sponsors: In determining whether a corporation breached its fiduciary duties to 401(k) participants, the actual fees charged to workers are not nearly as important as the procedure a sponsor has in place supporting its decision to hire, and keep, any firm that provides 401(k) services to plan participants.

So, for instance, if plan sponsors offer actively managed mutual funds on their 401(k) platforms, sponsors are not acting negligently if these funds wind up underperforming—even if the funds are more costly to participants than passive investment options that could have generated better returns for a lower fee. As long as 401(k) sponsors can document that there was sound reasoning and process underlying its selection of the actively managed funds, then they are not breaching their fiduciary responsibilities.

I like this because it is a perfect match for something I have been preaching on this blog for some time, and which is exactly what I tell reporters who call up asking for suggestions as to how plan sponsors and administrators can best protect themselves against fiduciary liability: follow and document best practices that show that the company tried to locate the best funds at the best fees. Sponsors and fiduciaries can do this by such steps as: (1) bench marking selections against other options and the market as a whole; (2) bringing in outside experts who can provide that information; (3) choosing funds whose costs are consistent with the industry and not outliers; and (4) considering multiple vendors, options and choices before settling on the best overall option, just as the company would in picking vendors for any other service or product. What this really means in the real world as to follow, or mimic, an RFP type approach to selecting funds and vendors, and never, ever, just buy funds from someone a fiduciary knows from playing golf.