High-profile court cases that pit participants in defined-contribution retirement plans against the plans' sponsors have dominated news headlines lately. Participants in some plans have sued, claiming their plan's sponsor violated its fiduciary duty by offering investment options that carry excessive fees. If you sponsor a defined-contribution plan, the implications of cases like Tibble v. Edison and Tussey v. ABB might have you feeling a bit of pressure. You wouldn't be alone.

Heightened scrutiny on defined-contribution plan fees has led some sponsors to decide to move their plan investments to lower-cost passive options. The rationale is that if courts have decided high fees are bad, then funds with the lowest possible overall cost must be good. Unfortunately, things are not that simple.

At the core of several court cases is ERISA Section 404(a)(1), known as the “prudent investor standard.” It specifies that a plan fiduciary has a duty to act solely in the interests of participants and beneficiaries, defray reasonable expenses of administering the plan, and act in the same manner that a prudent person would in the same circumstances. These provisions do not suggest that the plan's fees must be the lowest on an absolute basis, just that they must be reasonable.