The Lawrence Berkeley National Lab calls KEVLAR® the "Wonder Material" on it’s website because of its strength. The material is used by law enforcement, the military, and by civilians.

Police wear bulletproof vests made of KEVLAR® which we know from watching cop shows. The U.S. Navy uses KEVLAR® cables to support sonar facilities to find out how much noise submarines make because it is 20 times stronger than steel under water. And windsurfers use sails that are made with KEVLAR® which can withstand the force of 60 mph winds and don’t rip easily.  But unfortunately, we can’t use the Wonder Material to make a 401(k) plan.

LaRue, understandably, has brought out all the pundits. A few have suggested the best protection is allowing participants to self-direct their investments, a few have suggested not allowing participants to self-direct, and a few have said to not permit self-directed brokerage accounts. 

But in my opinion, most of the commentators have nailed it. It’s not about the structure, it’s about process. Specifically, "procedural prudence", a concept that has been part of the fiduciary world long before ERISA.

But what exactly does it mean? In my view,  it’s having a process in place that can answer the following questions about plan investments:

  • Is there an investment policy statement?
  • What objective criteria were used to evaluate the investments?
  • What was done when a choice failed to meet the criteria?
  • What other service providers were considered?
  • How were the employees educated?

Questions that might be asked by the Department of Labor or plan participants (or their attorneys). It’s both risk management and prudent management.

Yes, it’s that simple, and that difficult.

KEVLAR® is a registered trademark of E.I. du Pont de Nemours and Company.