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The Duty to Look at Models

In a recent blog post, Fred Reish highlights a fiduciary obligation with which many may be unfamiliar.

He notes that the practice of providing participants with asset allocation models that are populated with a plan’s designated investment alternatives (DIAs) can continue under the Department of Labor’s fiduciary rule, but as education.

Reish notes, however, that the rule requires monitoring those models and which DIAs are used for them. In addition, he points out, the fiduciary focus should be on the costs and payments from investments to advisers and providers. He cites the regulation’s preamble:

[I]t is important to emphasize that a responsible plan fiduciary would also have, as part of the ERISA obligation to monitor plan service providers, an obligation to evaluate and periodically monitor the asset allocation model and interactive materials being made available to the plan participants and beneficiaries as part of any education program.


The preamble goes on to explain that the evaluation should include “an evaluation of whether the models and materials are in fact unbiased and not designed to influence investment decisions towards particular investments that result in higher fees or compensation being paid to parties that provide investments or investment-related services to the plan.”

Reish acknowledges that “most plan sponsors won’t know about this duty,” and that “even if they become aware of the responsibility, they probably won’t know how to evaluate whether the ‘education’ models are little more than disguised vehicles for generating management fees for proprietary products or more revenues for advisers or their financial institutions.”

Reish’s solution? This affords an opportunity to provide a valuable service.