Lawsuits and Settlements Proliferating

By: Lance Reising

This summer there has been a rash of new retirement plan lawsuits filed. Some older lawsuits have also been settled. Since they don’t make big news you may have missed them - but the trend is clearly that the number of lawsuits and the number of law firms bringing them is increasing.

Many of the companies which have been named are household names, and some are retirement plan providers themselves. Just a few are Goldman Sachs, John Hancock, Fidelity, CareerBuilders, LinkedIn, Estee Lauder, Costco, BB&T, and McKinsey & Co. For a good listing of a few of these and a good digest of each, here's a link.

Many of these big names have settled for one reason or another while being accused of taking self-benefitting actions or just failing to pay proper attention to their plans. It should also be noted that it is the plan sponsors and their investment committees which are being named as defendants, not their plans’ recordkeepers and administrators in most cases.

There are multiple accusations in these lawsuits which allege things such as allowing excessive fees, self-dealing on their own plan to the detriment of participants, failing to properly monitor the plan investments, the use of proprietary funds, revenue sharing masking actual fee levels, not offering a stable value option, and offering employer stock as an investment option. Some accusations have been struck down in a few cases, but they were still accusations.

What can a company/plan sponsor do to avoid being sued and/or face a Department of Labor audit? The obvious answer is to not do any of the allegations named above. In order to have a better chance of not doing those things, you can make sure you deal with a proactive financial advisor who:

1. Is a true fiduciary stating in the plan documents they will act as either a 3(21) or a 3(38) fiduciary. The best way to know is to deal with a Registered Investment Advisor.
2. Regularly monitors the fund lineup to assure that the lowest available mutual fund share classes are used, and index funds and collective investment trusts are explored for lower fees and reasonableness.
3. Discourages the use of proprietary funds unless the process used to choose them is well-documented.
4. Discourages any form of revenue sharing such as 12b-1 fees and Sub-TA fees to increase fee transparency.
5. Should know what the various service providers are receiving, how much they are receiving, and from whom and for what function.
6. Regularly monitors the recordkeeping and administrative fees and the performance of the fund lineup. Benchmarks regularly.
7. Makes certain that the Investment Policy Statement is being followed and there is a well-documented review process for decision-making.
8. Assists with employee education and plan communications.

Interested in a plan review of your current plan? Email info@investorsassetmanagement.com for a complimentary consultation.