Every business uses an interconnected "supply chain" for producing its products or services and delivering them to their customers. Supply chain management is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. Every well run business spends a lot of time knowing its vendors and managing the supply chain.

In the same way, retirement plan sponsors oversee a supply chain of services acquired from external vendors. Since ERISA requires plan Administrators (fiduciaries) to prudently select and monitor service providers, managing the supply chain is a critical activity.

The word "Administrator" is used by ERISA to define the person who is responsible for all of a pension plan's operations. Even though the Congress intended that the Administrator would be an independent professional organization, specifically trained for the role and to be the primary fiduciary, most plan sponsors have retained the Administrator role and all of its responsibilities. Managing the fiduciary supply chain is one of the most fundamental duties of an ERISA Administrator. Yet it is a widely disregarded activity evidenced by the large number of fines levied against plan sponsors by the Department of Labor for their failure to do it properly.

The duty to act prudently is one of a fiduciary's central responsibilities under ERISA. It requires expertise in a variety of areas. Lacking that expertise, a fiduciary should hire someone with the professional knowledge needed to carry out investment management and other functions.

Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. When hiring any vendor, a fiduciary should survey a number of potential providers, asking for the same information from each one and giving the same requirements to all. By doing so, a fiduciary can meet their major accountability, which is proving they executed a defined prudent process.

Since proving that vendor selection is conducted in an unbiased way, plan sponsors should be wary of using an outside firm to conduct a vendor search or vendor review that sells the services that are the subject of the work. A growing number of investment firms and third party administrators entered the vendor search business recently in order to shore-up revenues lost during the market decline of 2008-2009. The wise plan fiduciary will recognize quickly the conflict of interest that exists when employing a vendor to evaluate other vendors in their service category. Lawsuits for breach of fiduciary duty filed against plan sponsors are working their way through the courts that have weak defenses because of conflicts of interest that infested the vendor selection and monitoring process. Supply chain management is an activity that requires professional help.

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