ERISA litigation has been around almost as long as the law itself. Every year, some company is facing an excessive fees case or company stock litigation. However, a new trend emerged last year, which many plan sponsors find alarming.
In 2016, a number of cases were brought based on the actual investments offered by the plans, and not just their managing of them or the costs involved. The Supreme Court decision in Tibble v. Edison established that fiduciaries have an ongoing duty to monitor investments, which has opened the door to such claims.
2016 ERISA Cases (1)
Bell v. Anthem. This case claimed a breach of fiduciary duty in charging excessive fees. It wasn’t just the fund fees (in this case a 4bps Vanguard fund) at issue. The claimants alleged that Anthem did not act in a fiduciary manner because they did not use their bargaining power to lower the fees. Anthem had recently taken steps to reduce their costs and most of their offerings were low-cost by industry standards, but that was not considered enough. (2)
White v. Chevron. In this case, the plaintiffs alleged a breach of fiduciary duty by offering a money market fund instead of a stable value fund. They also claimed that the company should have been able to negotiate lower recordkeeping and investment fees. A California court dismissed the case because the claims were too broad and lacked evidence to justify a full trial.
Ellis v. Fidelity. Like the Chevron case, this one accuses Fidelity of imprudent investment strategies for the use of a stable value fund. The plaintiffs claimed that the fees were too high and returns too low, and therefore its use was a breach of fiduciary duty.
Johnson v. Fujitsu. Among other cost- and fund class-related issues, this suit challenged the use of custom target-date funds, or TDFs. By hiring a firm inexperienced and without a public track record to design and implement the TDFs, the suit alleges that Fujitsu did not act in a fiduciary manner. (3)
What To Expect In The Future
Custom TDFs were also under attack last November in a case against Intel, where they were accused of using too many nontraditional assets. (4) Moving forward, this will become more and more common. Lawyers have moved beyond just fees, and are now eyeing investment selection, administration, and types. The trend may be spreading to 403(b) plans in the near future as well.
As plan sponsors are being increasingly attacked for their investment decisions, it is imperative to take a proactive approach. Sponsors need to review and benchmark their investments and ensure that they are meeting the needs of plan participants.
How To Maintain Compliance
In this increasingly litigious environment, maintaining compliance is vital. For the investment side of ERISA compliance, here are some things you should do:
- Document all fiduciary decisions so that you can prove your prudence if questioned.
- Benchmark your investments periodically to ensure that they are performing as well as or better than similar options.
- Protect yourself from excessive fees by comparing your costs to those of similar plans and investments.
- Offer a broad variety of investments so that every participant has their needs met, no matter their risk tolerance or time horizon.
- Evaluate your investments on a regular basis to make sure that they are still the best choices available for your plan.
How We Can Help
As a plan sponsor, you are probably not a trained investment specialist. Therefore, you should not be trying to select your plan investments on your own. Let the professionals handle that. Don’t risk breaching your fiduciary duty by making a poor investment choice.
Here at PlanPilot, we have over 20 years of experience working with retirement plans and their investments. We can help you meet your fiduciary duty as it relates to your plan’s investment options. Call us today at (312) 973-4911 or email info@planpilot.com so we can review your plan investments and make sure you won’t find yourself facing a lawsuit for the investments you choose.