Fiduciary Duties For Managing NPO Employee Retirement Plans

Written exclusively for ChubbWorks for Not-for-Profit Zone

A longtime employee of Southwest Research Institute claims the San Antonio-based nonprofit mismanaged its employee retirement plan.

The nonprofit faces a potential class action lawsuit for allegedly violating the Employee Retirement Income Security Act (ERISA) by failing to administer the defined contribution plan "in the best interests of participants," which allegedly led to them losing millions of dollars.

The Teachers Insurance and Annuity Association of America (TIAA), or its affiliate, manages all of the investments in the plan. It is the only plan among more than 9,000 plans with at least $250 million in assets covered by ERISA that only offers TIAA-managed investments.

The plaintiff alleges the nonprofit failed to manage TIAA and its investments, many of which have underperformed for decades by as much as two percent per year. In addition, many of TIAA's index funds are more expensive than similar funds from competitors.

The former employee is seeking a declaration that the nonprofit and twenty other defendants breached their fiduciary duties, as well as an order compelling the defendants to "personally make good" all losses incurred by the plan as a result of this breach.

The exact amount the plaintiff hopes to recover was not specified.

According to a 2021 report, Southwest Research Institute's retirement plan had more than 5,800 participants, with 2,825 active members and nearly $1,5700,000,000 in assets, making it one of the 900 largest plans in the U.S. Patrick Danner "Southwest Research Institute employee sues, alleging retirement plan mismanagement, millions in losses" (Jun. 29, 2023).

Commentary and Checklist

In general, fiduciary duties include: the duty of due care; duty of loyalty; duty of good faith; duty of fair dealing; duty of candor; and the duty of oversight.

One way to comply with the duty of due care is to diversify retirement investments. Provide plan participants with multiple options, not only for investments, but also for plan managers. That way, employees can choose among managers with lower fees or stronger investment performance records.

Failing to give retirement plan participants sufficient choice, especially if those options fail to perform and/or are expensive, creates risk.

To fulfill these fiduciary duties – to act only for the benefit of the beneficiaries - those managing a retirement plan must:

·      Be present, informed, and engaged;

·      Use good and independent judgment;

·      Utilize expert advice and trusted information;

·      Seek to stay abreast of legal developments;

·      Maintain good governance;

·      Make reasonable decisions in good faith and in a prudent manner; and

·      Generally, use best practices in making decisions after considering all available information, and then acting in a judicious manner that promotes the beneficiaries’ best interests.


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