Between a Rock and a Hard Place

 Plan fiduciaries might well have gotten a case of severe whiplash last week.

I’m referring of course to the dual announcements from the Labor Department (a) rescinding its previous position on cryptocurrency in retirement plans and (b) indicating  that it in some fashion plans to review/change the current so-called ESG rule through a formal regulatory notice-and-comment period — presumably rather than defend the current version which had been challenged in court. That, and any day now it’s expected that the Administration will (similarly) soften, if not shift, its previous take on private equity investments in defined contribution plans.

Doubtless many are cheering these new developments; others, of course, will see this as either a danger, or a diminution of fiduciary responsibility. And some, surely, will like one, but not the other. 

Regardless, if you’re a plan fiduciary trying to figure out what is right and prudent to consider as plan investments — well, by any rational measure these shifts are abrupt, if not contradictory in effect if not purpose.   

Now, admittedly the world has changed since the Labor Department first staked out positions on these matters — markets have matured, definitions (notably ESG) have “evolved,” and while time inevitably allows us to review past experiences in a different light — we all know what has actually happened is that the Trump Administration looks at the world of retirement plans (and markets generally) differently than the Biden or Obama and even the Bush Administration(s). And even if the standards of conduct established by ERISA haven’t changed, the application of those standards apparently has. Yes, over the course of time and experience, as you would hope/expect, but more accurately over the course of change in administrations.

Worse, we live in a time when the plaintiffs’ bar — without a hint of irony — manage to find fault both with failing to add a stable value option, and the decision to add one rather than a money market alternative, to challenge as imprudent target-date funds that don’t mirror the (different) glidepaths of the rest of the “pack,” or to claim that following the legal terms of the plan document in forfeiture dispositions runs afoul of one’s fiduciary obligations. 

Add to that the growing industry chorus that a less-than-active consideration of mechanisms like in-plan retirement income constitutes a failure to consider “best interests” — and it’s no wonder that prudent plan fiduciaries feel themselves stranded in the middle of a “damned whether you do – or not” minefield.

The reality is that plan fiduciaries have always had to thread a needle of sorts; trying to act solely in the best interests of participants on matters in which they often lack the requisite expertise to make that evaluation — and in matters for which they bear personal responsibility. It’s why many do — and all arguably should — tap into the insights and experience of those who have that expertise. 

But in this “rock and a hard place” environment, you can’t fault plan fiduciaries for choosing to avoid or defer making big changes in plan design when the rules — and rule makers — change so abruptly.

• Nevin E. Adams, JD