How do your employees enroll in your retirement plan? How do they make investment changes or allocations? If you offer tools to help educate participants, how are the tools accessed? For one and likely all of these questions, your answer is “online.” The days of paper everything are over. Service providers make enrollments, investment changes, tools, and other resources available online and often available through an App.
There are many benefits to these “easy buttons,” but there may also be additional plan sponsor responsibilities related to online access. One academic - Shlomo Benartzi[1] - argues that to continue to act prudently in this digital age, plan fiduciaries must have knowledge of the websites and Apps that are available to their participants.[2]
Where does ERISA say I must review a website?
ERISA, enacted in 1974, does not explicitly require you to review Apps and websites as a part of your duty to the retirement plan. However, by extension of the law, this duty likely exists. Benartzi and other legal scholars[3] make the point that ERISA states that a fiduciary:
“shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and…with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man…” [emphasis added]
The circumstances then prevailing in the 21st century are a digital age that likely require fiduciaries to review the websites and Apps of the service providers making the resources available to participants. Fiduciaries already have the duty to review more “traditional” materials and services, including paper participant statements/communications and in-person education and advice services, but as these services continue to evolve in the digital world, arguably the duty to monitor also evolves.
What Steps do I Need to Take as a Digital Fiduciary?
If you answered “online” to any of the questions initially, you are a digital fiduciary – meaning that you likely have some responsibility related to the online interfaces made available to participants. So, what steps should you take to review and meet your fiduciary responsibilities? Consider the following:
- Inventory what’s available online for your participants. Start by understanding what is made available to participants. Are you working with one service provider or multiple that have online interactions with participants? For each, what services are made available? Examples of activities/services may include: enrollment, savings rate selection/changes, investment option selection/changes, cash out options, investment education, and tools and calculators, among others.[4]
- Determine what is customizable with your service provider(s). Depending on the plan size and the capabilities of the service provider, various screens and activities may be customizable. If the plan is running a campaign to evoke a specific action such as beneficiary review, the recordkeeper may include a reminder to review or update beneficiaries. Plan fiduciaries should understand the customizable elements of this screen, including the ability to utilize this screen.
Another common example would be the display of the investment menu which is often customizable. At Multnomah Group, we utilize a tiered investment menu structure, which assists participants in easily making investment decisions, with Target Date Funds in Tier 1 (by way of example). However, if the recordkeeper doesn’t customize the online screens to match the investment tiering structure, participants will not benefit from this communication structure, the purpose of which is to help participants easily make decisions.
- Consider what will make it easier for your participants to achieve the best outcome. As with many things under ERISA, there is not a right/wrong answer so long as prudent process was followed. Going back to the investment selection example, there is evidence to suggest[5] that if a participant is given a list of investments in alphabetical order, the participant will show bias in making investment choices based on the listing rather than the investment options available. As a fiduciary, continually engage to consider ways to assist participants in overcoming biases such as alphabetical listings (and others that may exist). If the plan fiduciaries find that the investments are listed in alphabetical order, they may ask their service provider if the listing of investments on the website is customizable. If it is they should ask that it be structured in a way that is easier to navigate and understand for participants. If customization is not available, this may be a factor to consider in future service provider searches.
- Include digital in your periodic review criteria of service providers. As you periodically review the services and fees of your retirement plan service providers, include digital criteria in the review. The digital component may include many criteria including cyber security and more but be sure to include the ability to customize and assist the plan fiduciaries in creating an online experience that will lead to the best outcomes for participants.
The standard under ERISA remains one of prudence and the considerations outlined under this post are steps that fiduciaries can start to implement into their annual fiduciary programs along with their retirement plan consultant. To learn more about the age of the digital fiduciary and how it applies to your work as a retirement plan fiduciary, contact your Multnomah Group consultant.
[1] Shlomo Benartzi is a professor at UCLA and Senior Academic Advisor at the Voya Behavioral Finance Institute for Innovation. If you have ever considered participant behaviors in the retirement plan, you are likely familiar with Shlomo Benartzi. Along with Richard Thaler, Benartzi is well known for his Save More Tomorrow work that incorporates concepts such as automatic enrollment and automatic escalation.
[2] Shlomo Benartzi, The Digital Fiduciary, Overseeing Retirement Plans in the Digital Age, available here: https://forprofessionals.voya.com/sites/forprofessionals.voya.com/files/3052995_DigitalFiduciary_Paper_FINAL.PDF.
[3] See Michael Hadley, Appendix B of The Digital Fiduciary, Overseeing Retirement Plans in the Digital Age, available here: https://forprofessionals.voya.com/sites/forprofessionals.voya.com/files/3052995_DigitalFiduciary_Paper_FINAL.PDF.
[4] Note that investment advice was excluded as services such as managed accounts require a fiduciary responsibility and are outside the scope of this post.
[5] Doellman, Itzkowitz, Itzkowitz, and Sardarli, Alphabeticity Bias in 401(k) Investing, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3295400.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.