PLANSPONSOR - August/September 2021 - 4

Turned Around
INSIGHTS
PUBLISHER: Alison Cooke Mintzer
alison.mintzer@issmediasolutions.com
W
ant to read a claim that says we've completely lost the narrative in the
world of retirement plan litigation? Recently-and I can't make this
up-a plan sponsor of a $1.4 billion plan was sued, plaintiffs alleging the
sponsor had breached its fiduciary duties by authorizing the payment of unreasonably
high fees for retirement plan services and by failing to reasonably and adequately
review the plan's investment portfolio with due care to ensure that each investment
option was prudent in terms of cost.
OK, that seems relatively straightforward, and a fairly standard claim. However,
what made me facepalm was this: The attorneys insisted that the plan sponsor
should have used share classes that included more, rather than less, revenue
sharing, based on the idea that the overall cost of recordkeeping and investment
management would have been lower.
Wait-the sponsor should have had more revenue sharing? Once again, it's clear
that no matter what a plan sponsor does, if an attorney decides the plan is of interest-
which is probably just if it's large enough-the plan will likely be scrutinized.
Retirement plan litigation has been around, in one way or another, since the
beginning of retirement plans. But let's not forget the wave we've been dealing
with for the past 15 years. (As an aside, can we even call it a wave if it's really been
that long? It's kind of just the norm now.) That wave, we well know, began with a
number of high profile cases filed by the law firm Schlichter, Bogard & Denton
against a group of mega-plan sponsors and alleged that the nature of revenue
sharing relationships was imprudent and not properly transparent or understood.
Although many courts have decided that revenue sharing is not inherently
wrong, I think it's safe to say that the allegations against revenue sharing did paint
the practice in a poor enough light that many plan sponsors became reluctant to use
funds with such a fee structure. After the lawsuits were filed, in 2006, the industry
began a-relatively fast-march toward increased transparency. It wasn't just about
making institutional share classes or collective investment trusts (CITs) accessible at
a lower investment level, but the industry saw the rollout of new share classes with no
revenue sharing available and regulations promoting transparency of fees. Increased
transparency is rarely a bad thing, and I think, although sometimes it can still be
difficult to understand all the components of recordkeeping and investment management
pricing, these changes have generally improved the industry.
At the core of all of this are, of course, the Employee Retirement Income Security
Act (ERISA)'s stated fiduciary duties and responsibilities. For a plan sponsor, there
is no " lowest cost " requirement, despite what some of these lawsuits-and I think
some provider positioning-might have you believe. As for revenue sharing, I know
plan sponsors that used it to lower the net cost of funds, only to have participants
argue for more transparent fee structures, and other sponsors that use it successfully
to pay vendors and have no participant complaints.
While the industry has increased transparency, plenty of revenue and fees get
passed between vendors. Sponsors should ensure they and their plan committee are
clear on how the final price that is paid by the plan and its participants is reached.
Legal filings will continue, and there's not a magic bullet to ensure you don't get sued,
but if you have a process and understand how, and what, your plan and participants
are paying, you'll be better prepared to answer. -Alison Cooke Mintzer, Publisher
4 PLANSPONSOR.COM August - September 2021
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