PLANSPONSOR - August/September 2019 - 50

2019 PLANSPONSOR NATIONAL CONFERENCE
investments, for recordkeeping or both.
Plan sponsors should determine whether
lower-cost, similar-type investments are
available to their plan. She noted the
difficulty of comparing different investments
vs. the same investment in two
different share classes. Lawsuits are also
getting into the active vs. passive discussion,
arguing that actively managed
investments cost more. Additionally, a
big subset of suits claim self-dealing by
plan providers that use proprietary investments
in their own defined contribution
(DC) plans; plaintiffs argue that these
investments cost more than others.
Some excessive fee lawsuits claim
that recordkeeper asset-based fees are too
high or have ratcheted up with no accompanying
increase in services, Costin
said. Some claim that the sponsor failed
to monitor or renegotiate fees or issue a
request for proposals (RFP) to benchmark
fees or seek a provider with lower fees.
New excessive fee claims are being
(FROM LEFT:) Alison Cooke Mintzer of PLANSPONSOR; Emily Costin of Alston & Bird LLP; and Rhonda
Prussack of Berkshire Hathaway Specialty Insurance Co.
since the Employee Retirement Income
Security Act (ERISA) was passed, in 1974.
It was designed to protect fiduciaries
from personal liability outlined by ERISA
for breaches-including unknown or
inadvertent-of fiduciary duty.
If plan fiduciaries get sued, the
policy advances payment for defense bills.
If the plan fiduciaries settle in the suit,
the insurer contributes some, or all, of the
settlement amount.
Litigation costs can erode the limits
of the insurance, and insurers pay more
in settlements now than in defense costs,
she pointed out.
According to Prussack, when determining
whether to insure a plan sponsor
and its fiduciaries, the underwriters put
themselves in the plaintiffs' lawyers'
shoes and look for particular types of
behavior. " For example, whether recordkeeping
fees are based on plan assets or
are a flat fee; whether the plan has robust
processes; whether plan fiduciaries know
their role, meet routinely, benchmark fees
and have a process for eliminating underperforming
funds; and whether they do a
request for proposals [RFP] every three to
five years to ensure the plan uses the best
provider and gets the best value, " she said.
Hard to answer is how much insurance
to buy. She said the rule of thumb
was to cover at least 10% of plan assets, but
now the amount can vary. She gave one
recommendation: Employee stock ownership
plan (ESOP)-owned companies;
companies undergoing transactions such
as mergers, layoffs or pension risk transfer
(PRT); and larger firms should get the
most insurance they can afford. -RM
Fee Litigation
A highly applicable topic in terms of
Employee Retirement Income Security
Act (ERISA) litigation against sponsors
of small through large plans is fees, said
Emily Costin, a partner with Alston &
Bird LLP.
Lawsuits allege excessive fees for
50 PLANSPONSOR.com August - September 2019
made, she said. One type alleges that the
recordkeeper is trying to increase profits,
either by providing one service at a negotiated
fee while earning more through added
plan services, or by using participant data
to cross-sell services. Lawsuits have also
been filed about hidden fees. Some relate
to fees for financial wellness services and
ask who is paying for the services and what
do participants really get from them?
The good news is that most excessive
fee lawsuits never go very far, Costin
said. Where many fail is in the plaintiffs'
allegations-e.g., merely alleging that the
plan did not use the cheapest share class
or investment option. She said a standard
to get past a motion to dismiss is
emerging and differs by jurisdiction, but
she suggested it takes into account that
plaintiffs lack key information such as
committee meeting notes.
" No court has said plan sponsors have
to pick the lowest-cost funds, " Costin said.
" Just claiming investments performed
poorly, on hindsight, holds fiduciaries to
a standard that's impossible, so plaintiffs
have to also claim something else was
done wrong. " -RM

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PLANSPONSOR - August/September 2019

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