Plaintiffs’ attorneys in class action litigation against retirement plan fiduciaries are continuing to raise the bar regarding expected duties of fiduciaries. The most recent example is litigation with fiduciaries who elected to use money market funds as an investment option within the plan. In the current rate environment money market investments have seen net of fee returns hover near zero for over five years. Plaintiffs have seized the opportunity to make claims that a money market was an unsuitable investment option, generating returns less than inflation.
Plaintiffs are asserting that stable value products would have generated a greater return. Over the periods mentioned, stable value returns have exceeded those of money market funds; however, this misses the point. U.S. Equity funds have also exceeded the returns of money market, but clearly all parties are aware that U.S. Equity funds and money market funds are not “equivalent.”
While standard deviation numbers for money markets and stable value funds are similar, their makeup, risk, and return profiles are dramatically dissimilar. We work with clients using both approaches since the appropriateness of either products varies between clients. As with most situations related to fiduciary process, the key is in the documentation.
The case of Tibble v. Edison International has received tremendous attention among those in the retirement plan industry. Worth noting is the courts found in favor of the plan sponsor using a money market fund within the plan. The plan sponsor was able to document it reviewed alternatives--including stable value--and reached a reasonable determination that a money market best suited their plan and situation
Whether you elect to use money market funds, stable value funds, or something else altogether, documenting your process and conclusion is more important than ever.