“The 3rd U.S. Circuit Court of Appeals has revive a lawsuit against fiduciaries of the University of Pennsylvania’s 403(b) plan which had been fully dismissed by a District Court in 2017.
The appellate court agreed with the dismissal of most claims, but when it came to claims about excessive fees and improper investments, the court found the plaintiff plausibly alleged a breach of fiduciary duty under the Employee Retirement Income Savings Act (ERISA). It said the plaintiff’s factual allegations are not merely “unadorned, the-defendant-unlawfully-harmed-me accusations, but are numerous and specific factual allegations that the university did not perform its fiduciary duties with the level of care, skill, prudence, and diligence to which plan participants are statutorily entitled under ERISA Section 1104(a)(1).” Click here to keep reading.
“While the role played by Great-West in this case is relatively unique, in considering the claims here, the 10th Circuit (and the district court) spent a considerable amount of their analysis reviewing the circumstances that created fiduciary status (or in this case, failed to do so)” Click here to learn more.
“A new report notes that large companies have paid out $6.2 billion in 201 ERISA class-action lawsuits since 2000. And that’s the total of (just) 201 settlements and verdicts since the beginning of 2000 involving corporations in the Fortune 1000, the Fortune Global 500 and the Forbes list of America’s Largest Private Companies.” Click here to keep reading.
“Last week, International Business Machines Corp. (IBM) sought Supreme Court review of a Second Circuit decision favoring retirement plan participants claiming the plan’s fiduciaries breached their duty of prudence in failing to disclose pertinent information with respect to the declining value of the business. Click here to keep reading.
Source: Holland & Hart
“How confident are you that your company’s retirement plans are being run in accordance with all legal requirements under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC)?”. Click here to learn more.
Source: GTLaw Insights
“A compliance calendar keeps track of your company’s required filings, their due dates and related details so you can avoid incurring any fines or other penalties for late filings or missing information”. Click here to learn more!
“It has only been about a year and a half since large U.S. universities became the target of ERISA lawsuits, making for a fresh crop of claims and defense strategies that matter for all types of DC plans. Click here to read more about why there is unlikely to be a slowdown in the pace of ERISA lawsuits.
“There is unlikely to be anything like a slowdown in the pace of Employee Retirement Income Security Act (ERISA) lawsuits filed against retirement plan sponsors and providers.” Click here to learn more!
“Agreeing with a federal district court that plaintiffs did not allege sufficient facts to support a plausible claim that Chevron Corporation and its defined contribution (DC) plan committee breached their Employee Retirement Income Security Act (ERISA) duties of loyalty and prudence, the 9th U.S. Circuit Court of Appeals affirmed dismissal of the lawsuit.” Click here for more details.
“A bill introduced in the Senate in July would create a new type of “open” multiple employer plan (MEP), an employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate.” This sounds like a good development, but there are considerable fiduciary issues. Click here to learn more.
“…the district court’s ruling mid-trial dismissing plaintiffs’ claims that Putnam acted imprudently in selecting the Plan’s investment options and that it breached the duty of loyalty by engaging in self-dealing,”. Click here to learn more.
Attention all fiduciaries - the American Bar Association's Fiduciary Litigation Update addresses the following:
1. 401(k) and 403(b) fee litigation
2. Fiduciary risk on alternative investments
3. Proof of causation on breach and damages
4. ESOP trials and valuation issues
Click here to read the update.
Source: American Bar Association
"Another one of the initial 403(b) university plan excessive fee suits has had its day in court. This was the second of the 403(b) university excessive fee suits to go to trial – and the second in which the university defendants prevailed." Click here to learn more.
11 Tips to Reduce Litigation Risk
Gordon Tewell, CFA, CPC, ERPA | Principal, Innovest Portfolio Solutions
While retirement plans with billions of dollars dominate the plan litigation headlines, smaller plans have the opportunity to learn from the suits filed against their larger plan peers and hopefully avoid possible litigation.
Until recently, the fee-based claims against retirement plan fiduciaries targeted “mega-plans” – e.g., Verizon ($30B); Chevron ($19B); Intel ($15B); Oracle ($11B); American Airlines ($9B) – but two cases may indicate an extension of fee based claims into the small/mid-size plan market: CheckSmart ($25M) and LaMettry’s Collision ($9M).
There is no doubt that litigators have been busy. We are seeing new approaches to court cases -whether an attack on revenue sharing, continued focus on company stock, or new inquiries into stable value, fee structures, or custom target-date funds (TDFs)—litigation doesn’t show signs of letting up. The suits attack plan sponsors, recordkeepers and, in some cases, investment managers. Recent cases bring a number of new attorney names into the litigation world as new entrants in the plaintiff attorney world continues to grow. The pace is unlikely to slow as cases are quickly duplicated.
Unfortunately, we are in a world where every action can be put under the microscope.
Committees should feel confident that, if they follow fiduciary best practices and due diligence, they have a strong defense. A prudent process and documentation is more essential than ever. There’s no time like the present to make sure you and your investment committee have a strong fiduciary file and continue to try to raise the bar.
While the fees, penalties and settlements of the cases mentioned above amount to huge sums, the actions that prompted these lawsuits are not unique to the handful of companies being charged. Plan sponsors should be taking copious notes and learning lessons from this litigation. Since it’s hard to predict what’s going to happen in the courts, plan sponsors should look to reduce the risk of litigation by following a best-practices strategy. Some key steps that sponsors can take to improve the plan for participants and protect themselves as fiduciaries include:
- Keep your ear to the ground. Know what is going on within the industry and what a prudent person would do.
- Benchmark and evaluate your providers. Even if a plan is satisfied with its current provider, consider periodically benchmarking or going out to bid with a Request for Proposal (RFP). The RFP process may disclose administrative and cost saving opportunities. Ensure that provider fees and expenses are reasonable by evaluating competitive bids every few years. An RFP process may uncover whether you are overpaying for services and whether other competitors might be providing useful additional services that your current provider does not offer. At the end of the exercise you may not be dissatisfied with your current provider, but at the least, you will know whether you should be renegotiating your current provider’s fees.
- Offer a broad mix of investment options. This will allow participants to adequately diversify their accounts. The menu should include low-cost index funds. Ask yourself, “Is a competitive capital preservation investment option available, and has the investment been thoroughly vetted?”
- Engage in fiduciary training. It is imperative that all committees understand the legal responsibilities of their position as a fiduciary.
- Review the cost and structure of your investments. A committee (or other fiduciary) should document that it regularly investigates share classes and fee options to ensure that it has considered the lowest cost option for which it qualifies. If higher cost funds are selected, a committee (or other fiduciary) should document the process that led to the selection of a higher cost fund as opposed to a cheaper fund - e.g., documenting the relative performance of the higher cost funds net of fees. Ensure fee transparency and equality for employees.
- Follow your governing documents. Plans should adopt an Investment Policy Statement and follow it. Adopting a policy and not following it can be worse than not having a written policy at all. Modify or update the policy as appropriate.
- Watch the proprietary funds. Recent litigation has focused on providers who put their own funds in their employee plans even though they were not top performers. Ensure that you evaluate all investments options, using an unbiased, well-documented process that can reliably evaluate how well each option is aligned to your plan’s needs and demonstrate the prudence of your decisions.
- Hire expertise. Unless you are a very large business with employees who have real expertise and time to spend, you are courting disaster by trying to do everything in house. Just about every plan needs professionals advising about investments and fees. And those professionals should acknowledge that they are fiduciaries.
- Monitor your revenue arrangements. There are alternatives to paying for plan services through revenue sharing that are more transparent. If you do enter into a revenue sharing arrangement, make sure your provider isnot being overpaid or that revenue sharing is not being used to pay for services to the plan sponsor rather than the plan participants.
- Continue to monitor the Plan investments. Just because you picked an appropriate menu years ago does not mean your menu is the best for participants today. Fiduciaries need to monitor performance against benchmarks and to be aware of new funds and alternatives to regular mutual funds, such as separate accounts and collective investment funds.
- Hold regular committee meetings. Prepare agendas and keep written minutes to record what is discussed and the reasons for decisions. Careful documentation makes it much easier to show a court that you were acting prudently. Make sure your notes are thorough.
One of the most dangerous statements that can be made is, “We have always done it this way.” Plan sponsors now have a unique opportunity to learn valuable lessons from these lawsuits and court cases and adopt best practices for managing their fiduciary processes and responsibilities.
Source: Innovest Portfolio Solutions, Gordon Tewell, CFA, CPC, ERPA
"Do you think that the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund. [Possible answers: True, False, Do not know; refuse to answer.]" Click here to find out why you should take another look at company stock.
Source: Plan Sponsor Council of America
"The aggregate value of settlements dealing with ERISA litigation, employment discrimination, wages and hours, and government enforcement soared in the latest year, underscoring a trend that has the potential to rock an employer’s balance sheet, if not bankrupt a company." Click here to read more.
Source: HR Daily Advisor
"A federal appellate court has affirmed the dismissal of a lawsuit alleging that Fidelity Trust Company offered and mismanaged a stable value fund for its own benefit rather than the benefit of 401(k) plan participants." Click here to read more.
"Defendants successfully made their case in staving off a decision in a case involving Princeton University’s 403(b) plans, and in so doing placed their bets on the outcome of another case in the 3rd Circuit." Click here to read more.
Plantiffs in the excessive fee law suit against Delta Air Lines had their suit dismissed. The judge ruled that since the plantiffs were not personally invested in the specific criticized funds and did not actually pay the alleged excessive recordkeeping fees, they could not sue. Click here to read more.
Source: NAPA Net