The abrupt departure of Bill Gross from PIMCO leaves many investors pondering their next move. Should an investor stay the course and see how PIMCO’s new investment team performs? Should an investor leave and follow Mr. Gross to Janus Funds? Should an investor rush to find a new bond fund manager?
These questions are particularly important for fiduciaries of 401(k) and other qualified retirement programs that offer PIMCO Total Return Fund as an investment option. Mr. Gross was the lead manager of the Total Return Fund, which reportedly is the second largest bond fund in existence and is a very common and popular choice for 401(k) and other defined contribution retirement plans.
In dealing with this highly visible issue, plan fiduciaries need to be mindful of the prudent person standard set forth in the Employee Retirement Income Security Act of 1974 (“ERISA”). The prudent person standard tells us that a plan fiduciary must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims . . . .” So what does this mean in the context of a fiduciary’s consideration of whether to retain or abandon the PIMCO Total Return Fund?
Plan fiduciaries may wish to gather and analyze as much information as they can with respect to the steps being taken by PIMCO to address Mr. Gross’s departure. In the few days since Mr. Gross’s announcement, many articles have been written about PIMCO. PIMCO also has held at least two conference calls to address Mr. Gross’s departure and its plans for the future. The prudent fiduciary should review these materials to become fully informed concerning the current situation. Perhaps depending on what the fiduciary learns by reviewing these materials, the prudent fiduciary also may want to consider other available alternatives. Once this information is gathered and analyzed, the fiduciary should make an informed decision.
There is no right or wrong answer. What is clear, though, is that a fiduciary who ignores the situation, or approaches it in a nonchalant manner, is failing to live up to the fiduciary standards imposed by ERISA.