investing in retail share classes and failed to consider the less
expensive institutional shares. To avoid such charges, plan
fiduciaries should: 1) regularly monitor the expenses paid by
the plan to ensure that the fees are competitive with similarly
situated plans, and 2) monitor and review the share classes for
which the plan qualifies.
As would be expected, several recent court decisions
considering the selection of investment options have focused
on cost. For example, the court in Hecker v. Deere held that there
is no duty to “scour the market” for investment options with
the lowest fees. Courts have also decided that, not unexpectedly,
ERISA does not preclude the inclusion of mutual funds on plan
investment menus. That being said, we think it makes good
sense for plan fiduciaries to consider the fees and expenses of
all available investment options when investing the assets of an
ERISA-covered defined contribution (DC) plan.
Plan fiduciaries should aim to avoid fiduciary liability
under ERISA by taking the following steps:
• Ensure there is a documented, prudent process in place
for the consideration, selection, evaluation and monitoring of
the plan’s investments;
• Compare the costs of all investment options available
to the plan;
• Periodically, survey the marketplace and document any
efforts to control recordkeeping or other plan costs;
• Ensure that each plan service provider’s compensation
is properly disclosed;
• Periodically evaluate the plan, its investments, the plan
menu and service providers as to performance and cost; and
• Explore appropriate fiduciary liability insurance and
fidelity bond coverage to protect the plan fiduciaries and
members of investment committees from liability.
Class action litigation has had a profound effect on the
delivery of retirement investments and services to plans, in
terms of both cost and anxiety. The cases filed and decided over
the past few years have taught us several valuable lessons.
Hardly a day goes by when we don’t see a new class action lawsuit brought against plan sponsors and their advis- ers—plan fiduciaries—regarding the management and
administration of retirement plans. Making things worse, plaintiffs’ theories used to claim that plan fiduciaries violated duties
to the plan have become wide-ranging and complex. Given the
frequency of such suits and the significant potential liability
relating to claims made under the Employee Retirement Income
Security Act (ERISA), plan fiduciaries should familiarize themselves with the types of claims raised against plan fiduciaries
and get an understanding of how courts have analyzed them.
This article describes some of the notable allegations taken
from the seminal cases in the retirement space and the key
points that plan fiduciaries should take from those cases.
As those who read this column regularly know, claims
brought against plan fiduciaries often involve the cost of administering and managing the plan. For example, in Tussey v. ABB,
the court determined that the fiduciaries failed to leverage the
size of their plans, to negotiate a reduction in recordkeeping fees
and should have avoided subsidizing the cost of non-plan-related
recordkeeping services. In response to these types of claims,
plan fiduciaries should understand the fee structure and the
amount paid to plan recordkeepers, regularly benchmark fees
with applicable peer groups and monitor fees on a regular basis.
Plan fiduciaries should ensure that their plan’s fees are evaluated apart from any services received by the plan sponsor and
that the plan is not used to reduce the sponsor’s cost.
Importantly, however, a plaintiff firm’s argument that
relies on “the payment of revenue sharing is per se problematic” have generally not been successful legally. For example, in
Renfro v. Unisys Corp., the court dismissed claims that paying
for recordkeeping fees through revenue sharing was per se
imprudent. The court did, however, find that revenue-sharing
arrangements need to be adequately disclosed. As a result, plan
fiduciaries should: 1) understand fees paid to recordkeepers and
other plan service providers; 2) review fees paid to plan service
providers on a regular basis; and 3) revisit disclosures to ensure
that compensation paid is accurately disclosed.
Plaintiffs also regularly focus claims on the selection of
the plan’s investment options. For instance, in Tibble v. Edison,
the appellate court ruled in favor of the plaintiffs and found
that the plan fiduciaries breached their duties to the plan when
Stephen Saxon is a partner with Groom Law Group
Chartered, headquartered in Washington, D.C. George
Sepsakos, an associate in Groom’s fiduciary responsibility
group, contributed to this article.
Notable allegations taken from seminal cases