Brotherston V. Putnam Investments…Practical lessons for committees

This case was decided by the 1st US Circuit Court of Appeals in 2018 in favor of the plaintiffs/participants. Yes the case involved proprietary investments which is an issue for very few firms (also, check to make sure your advisor isn’t proposing proprietary funds or collective investment trusts of his/her firm). What was interesting in this decision is the court said that a fiduciary can “easily insulate itself” from liability by “selecting well-established, low-fee and diversified market index funds” or for those selecting active funds it states, “it too will be immune as long as it follows a prudent selection and monitoring process.”

Now if you have invested in an index fund recently, you know that like Baskin-Robbins, there are at least 33 flavors. Market weighted, cap-weighted, rules based…. You also know there are certain indices that probably shouldn’t be made available as part of a core fund line-up. This case was petitioned to the Supreme Court to review the 1st circuits’ decision but was declined so the decision remains.

For retirement plan committees with massive laundry lists of funds, this can obviously create an unnecessary burden for you on an ongoing basis. It is one thing to evaluate & monitor fifteen funds but what if you have 50. More importantly, why do you have 50? It is important to not only follow common best practices in the industry but it is also key to read the tea leaves of what the courts opinions are telling you. #401k #403b #fiduciary #QPRetirement