PLANSPONSOR - August/September 2018 - 34

2018 PLANSPONSOR NATIONAL CONFERENCE
AUDIENCE POLL
Are you comfortable that you
know what financial wellness
means?
n Yes
n No
55.8%
44.2%
Retirement Income Security Act (ERISA).
Even in a 3(38) discretionary fiduciary
relationship, where the adviser takes on
full control of the investment menu, the
sponsor still has a real degree of fiduciary
risk exposure.
Both advisers agreed that going with
3(38)-level service frees up much more
time for the retirement plan committee
to talk about items besides fund choices
and investment returns. There can
be a greater attention to plan design,
plan performance, boosting deferrals,
improving communications, etc.
" With our 3(38) clients, we spend probably
just 10% of each quarterly committee
meeting reviewing investments, and we
can then spend 90% of the time talking
about plan performance and participant
outcomes, " Goldstein said.
For sponsors choosing a 3(38) fiduciary
service provider, the speakers
cautioned that the devil is in the details.
" I would absolutely have counsel
involved and have them look at any
contracts and make sure you're getting
what you're being promised, " Kulick said.
" When it comes to costs, sponsors will see
some providers charge the same across
3(21) and 3(38) services. That is attractive
on its face for a lot of plan sponsors,
but you need to look under the hood and
make sure you know what you're getting
and what you're paying for. Vet this out
through the RFP [request for proposals]
process. " -John Manganaro
Insurance for Fiduciaries
Defined contribution (DC) plan sponsors
are facing a wave of conflict of interest
and self-dealing lawsuits, as well as cases
focused on the reasonableness of fees
that plans and participants are paying for
services and investments. According to
Emily Costin, a partner at Alston & Bird
LLP, these suits questioning how often
fees have been negotiated, who is monitoring
the fees and whether particular
investment options offer the best deal
available. She noted that these types of
cases have enough of a hook to get the suit
past the pleading stage, so the plaintiffs'
attorneys can get into discovery and really
probe what the fiduciaries are doing.
Rhonda Prussack, senior vice president
and head of fiduciary and employment
practices liability at Berkshire
Hathaway Specialty Insurance, said
fiduciary liability insurance at its core
is designed to protect directors and officers
and any organization's fiduciaries in
Employee Retirement Income Security
Act (ERISA) litigation. " It provides a
defense for these types of litigation and
covers damages whether from a court
finding or a settlement, " she told conference
attendees.
Fiduciary liability insurance should
cover violations of employee benefits law,
not just ERISA violations; additionally,
When deciding
how much
coverage to
purchase, plan
sponsors should
look at how
many plans
and how many
transactions
they have.
34 PLANSPONSOR.com August-September 2018
coverage for ministerial mistakes in
the day-to-day handling of the plan is
provided, Prussack continued. Benefits
promised are not covered under the
policy; it covers damages for actual breach
of fiduciary duties.
Jamie Fleckner, a partner at
Goodwin Procter, stressed that these are
complicated cases to defend and there
are numerous depositions. Plan sponsors
may have to bring in experts to say
whether they would have done something
similar or testify about what they see.
Trials are very expensive, so availability of
fiduciary liability coverage to pay the costs
is highly important.
Prussack recommended that plan
sponsors not use company counsel for
these cases, but an expert in ERISA class
actions for the particular type of case-
e.g., excessive fees, stock drop, etc. She
noted that what underwriters look for has
gotten more detailed, but what Fleckner
and Costin were talking about is what
Berkshire Hathaway looks for-a diligent
process.
" We ask how the plan sponsor determines
the reasonableness of plan fees. We
want to see that they have a robust process
that's been in place for a while, " Prussack
said. " Committees should have fiduciary
training. What we are trying to get at is
that fiduciaries know what they're doing
and know their duties. "
Costin said documentation is a good
thing, but whether it should be general-
e.g., the committee looked at this and
decided on this measure-or very
specific-e.g., the committee considered
this and for these three reasons decided
on the measure-is hard to answer. " Take
meeting minutes. You will never capture
every word, but I don't see a problem with
having more detail, " she told attendees.
When deciding how much coverage
to purchase, plan sponsors should look at
how many plans and how many transactions
they have. Prussack said insurance
brokers should be well-versed in what is
appropriate. She noted that the threshold
for plan litigation used to be $1 billion, but
that has fallen quite significantly as more
attorneys have become active in the space.
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PLANSPONSOR - August/September 2018

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