The $13.5 million settlement agreement that Wal-Mart and Bank of America Merrill Lynch entered into regarding Wal-Mart's 401(k) has gotten some visibility. Typically the commentary is on the fact that Merrill Lynch will be responsible for $10 of the $13.5 million. Employers with less bargaining power or where employees had fewer allegations against the platform provider might find themselves paying a larger chunk of settlements in similar cases.
The original allegations in the case were that Wal-Mart breached its fiduciary duties to its employees by offering only a handful of high cost, retail mutual funds and two index funds as investments in its 401(k) plan. Forbes noted back in 2009, in the early days of the litigation, that this lack of attention to costs was at odds with Wal-Mart's reputation for hard-nosed bargaining with its suppliers. http://www.forbes.com/forbes/2010/0118/investing-walmart-retirement-401k-paying-retail.html
Boards of directors should take note. Back in 2005 the New York Times carried a story about a proposal presented to the Wal-Mart Board of Directors as part of a review of the cost of employee benefits. http://printfu.org/read/wal-mart-memo-suggests-ways-to-cut-employee-benefit-costs-c14f.html?f=1qeYpurpn6Wih-SUpOGum6ynh8PQ4pLBydfkkrbT4dWVwNrT1tvY6NuFx9Pi4ZTa5I2o4eOWquHY0d_rztOUqNrbytLY6oW319jk5Yup56Cnp4fg45ig56KWoayL2OnZ6drVvL_b0dmKoOOsmqiWzJeo2KanqZ-W0Nnk4qOdo93s5JPf0deT4d3U2NvYnNnK6pzK4tTk3NmXyN_n2-HZ2aTSyNuirJajzpWlodvT1cre28zfnu3G4NXG4uaOoKTI2tvK0tjq2KLYydaUpOs That memo is still available at: http://www.nytimes.com/packages/pdf/business/26walmart.pdf . It recommends that Wal-Mart reduce its overall 'investment' in its profit sharing and 401(k) program in order to "reduce costs and help Associates better save for retirement." The reasoning appears to have been that if Wal-Mart amended its plan to stop providing 401(k) benefits to all Associated and instead only made plan contributions as 'matching' contributions, then it would help Associates by encouraging them to save for their own retirement. The debate on whether matching contributions are 'better' for employees, especially in a low-wage work place where employees also make substantial contributions to health care costs, is one we can leave for another day.
The interesting point from the 27-page review of Wal-Mart's benefit plans is that nowhere does the Wal-Mart board of directors seem to be given any information on the limited and expensive menu of investment options in the 401(k) plan. If any part of the concern in the benefit plan review was with helping "Associates better save for retirement," one would think that investment options might have been mentioned. Or, an attentive board member may have asked about those options.
Do boards of directors have a fiduciary obligation to delve into the details of 401(k) plans? No. Do they have a fiduciary obligation to appoint and monitor plan fiduciaries? Yes, without question.
Boards of directors of those relatively few companies with DB plans have an interest in the performance of the plan investments and the level of benefits provided by the plans. Those factors play a prominent role in the company's obligation to contribute to its DB plan. In other words, the board's fiduciary obligation to monitor the DB plan aligns with its business interest in the level of the company's plan contribution.
The move to 401(k) plans, however, seems to have given boards license to hand off as insignificant such plan 'details' as selection of plan investment options and its service providers. The questions that go to the board are those that directly impact the company's cost: the amount of the company's contribution and the number of employees entitled to receive contributions.
But, the Department of Labor has been clear. The selection and monitoring of investment options and service providers is a fiduciary function. In the coming year plan participants will begin to receive more disclosure on costs and fees associated with their 401(k) plans. Companies, including their boards of directors, need to understand those disclosures and be sure that they are pursuing the best interests of their employees.
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