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Legal Insights: Passive Does Not Reduce Fiduciary Liability

September 2016

Legal Insights: Passive Does Not Reduce Fiduciary Liability

“Court decisions do not
support the view that actively managed funds are inherently less appropriate for 401(k) plans than passively managed funds, or vice versa.”

— Stephen M. Saxon and Jason H. Lee, Groom Law Group

Recent Department of Labor (DOL) emphasis on fees combined with numerous 401(k) plan fee-related lawsuits have led some plan fiduciaries to question whether offering actively managed funds is riskier than passive funds that are typically less expensive.

Groom Law Group, a leading ERISA firm, has concluded that passive strategies do not reduce fiduciary liability:

  • ERISA does not mandate, and the DOL has not opined, that any particular investment strategy is prudent or imprudent.
  • No court has ruled that actively managed funds are inherently less appropriate for 401(k) plans than passively managed funds.
  • Excessive fee litigation has been about whether less expensive alternatives exist for the same investment strategy, a claim that could be made regardless of whether the strategy used is active or passive.
  • Plan fiduciaries may reasonably conclude that a particular actively managed fund could be expected to deliver better investment results net of fees.
  • Plan fiduciaries may consider other relevant facts, including that actively managed funds do not need to “track” an index down in a bear market.
  • Plan fiduciaries who prudently select and monitor an investment fund are not liable for any loss or underperformance of the fund.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.