If your committee were challenged tomorrow, could you defend the process?
ERISA judges a fiduciary decision by the process behind it, not by how the investment performed. That distinction is what a committee's minutes have to be able to show.
For a CFO, the instinctive question about a retirement plan is whether the investments performed well. Under ERISA it is close to the wrong question. The statute asks whether the people making the decision acted with the care, skill, prudence and diligence a prudent person familiar with such matters would use — “under the circumstances then prevailing.” Prudence is measured at the moment of the decision, on what was known then. It is procedural.
The Department of Labor’s investment duties regulation says the same thing in operational terms: give appropriate consideration to the facts relevant to the decision, and act accordingly. Neither the statute nor the regulation promises a particular outcome. Both describe a way of deciding.
The questions the minutes should answer
When was the last time the committee did each of these, and where is it written down?
- Benchmarked recordkeeping and plan fees against comparable arrangements
- Reviewed the target-date series against reasonable alternatives
- Documented why a fund was retained rather than replaced
- Reviewed the performance of the adviser and the recordkeeper, not only the funds
- Recorded the discussion, the alternatives considered, and the reason for the conclusion
The last one is the one most often missing. A decision that was carefully made and never written down is, in a dispute, difficult to distinguish from a decision that was never made at all.
Underperformance is not, by itself, a breach
A fund that trails its benchmark has not established that anyone breached a duty. Courts have been explicit that the inquiry is context specific and that the duty is one of process rather than result. What creates exposure is being unable to explain the reasoning: why that fund was kept, why that fee was reasonable for the services received, why that provider was retained.
The answer that does not survive scrutiny is “that is what we have always done.”
Selection is also not the end of it. The duty to monitor is continuing and separate from the duty exercised when an investment was first chosen, so a prudent decision made in 2019 does not discharge the obligation in 2026.
Why this is getting harder, not easier
Two developments matter for anyone weighing how much process is enough.
In Hughes v. Northwestern University the Supreme Court rejected the idea that offering a range of prudent options cures the imprudent ones, and returned the case for a context-specific look at each challenged decision. The existence of good choices on the menu is not a defence of the bad ones.
In Cunningham v. Cornell University the Court addressed what a plaintiff must plead to bring a prohibited-transaction claim under ERISA §406(a), holding that the statutory exemptions in §408 — including the reasonable-services exemption most service-provider arrangements rely on — operate as affirmative defences for the defendant to raise. The practical effect is that more of these claims get past a motion to dismiss, which puts the contemporaneous record of why an arrangement was reasonable to work sooner than it used to.
This is a governance responsibility
For CFOs and HR leaders, the plan is usually filed mentally under employee benefits. It also sits under governance. The committee is exercising discretionary authority over plan assets, which is what makes its members fiduciaries in the first place, and personal liability attaches to that role rather than to the company.
The question is not whether the committee can predict which investment will perform best. Nobody can. It is whether the committee can demonstrate that a prudent process stood behind the decisions it made.
What this does not say
This is a description of how the prudence standard works, not legal advice and not an assessment of any particular plan. Whether a specific committee’s process meets the standard depends on that plan’s documents, its facts and the advice of its own counsel. Nothing here evaluates any named plan, sponsor, adviser or provider.
Sources
- ERISA §404(a)(1)(B), 29 U.S.C. §1104(a)(1)(B): the prudent-person standard, including the phrase “under the circumstances then prevailing.” 29 U.S.C. 1104
- 29 CFR 2550.404a-1: the Department of Labor’s investment duties regulation, framing prudence as appropriate consideration of the relevant facts and acting accordingly. eCFR
- Tibble v. Edison International, 575 U.S. 523 (2015): a fiduciary’s duty to monitor plan investments is continuing and distinct from the duty exercised at selection. Opinion (PDF)
- Hughes v. Northwestern University, 595 U.S. 170 (2022): offering some prudent options does not excuse allegedly imprudent ones; the inquiry is context specific. Opinion (PDF)
- Cunningham v. Cornell University (2025): the §408 exemptions to ERISA §406(a) are affirmative defences rather than elements a plaintiff must plead. Slip opinions
- ERISA §408(b)(2) and 29 CFR 2550.408b-2: the reasonable-services exemption and the covered service-provider fee disclosures that make fee benchmarking possible. eCFR
See what a plan’s filings already show
Form 5500 filings and their attachments carry the auditor, the provider history and the disclosed fee arrangements for a plan year. 5500RADAR reads them and keeps each result attached to the document it came from.