The rash of 401k and 403b lawsuits as well as the new DOL fiduciary rule is shining a bright light on the fiduciary duties of a company sponsoring a plan under ERISA. As part of a new monthly series focused on helping plan sponsors fulfill their fiduciary duties, we asked David Levine from the Groom Law Group to provide an overview of those responsibilities.
According to David, plan sponsors have to be prudent and loyal making sure that the investments and fees paid as well as the third party providers hired are appropriate for the plan and the participants. Some of the recent lawsuits rely on hindsight, David quips, alleging that the plan sponsors could have offered cheaper funds sooner and negotiated lower fees.
Anyone can sue anyone for anything – the question is whether the case is valid and the arguments will be accepted by the court. In the Chevron 401k lawsuit, the judge dismissed the case because they noted that the company had been reviewing and monitoring fees and investments moving to institutional collective trusts even though the lawsuit alleged that they should have made the move sooner. The court also noted cheapest is not required. Plaintiffs have until the end of September to refile.
Smaller plans without the resources of Chevron need to follow the same rules which may seem daunting. But David says that it’s relatively easy for smaller companies to conduct a prudent and documented fee and investment due diligence with the help of advisors and consultants that use readily available databases and tools. He also notes that many plans are adopting an investment policy statement (IPS) which he recommends be flexible. Finally, David suggested that there is no right way to pay fees whether asset based or flat fee as long as there is a reasonable documented process followed.
More to come from David next month.
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