In a series of interviews, the attorney leading the wave of 401k lawsuits, Jerry Schlichter, reveals some of the biggest mistakes that advisors working with small plans make, what’s next for his landmark victory in the U.S. Supreme Court and how he won the first full trial against a 401k plan sponsor and the industry’s largest record keeper.
The biggest mistakes that Schlichter sees advisors working on defined contribution plans make include not drilling down on the details of the plan. Like the employers they represent, advisors are held to the very high standard of a prudent expert which includes the duty to benchmark plan fees and investments.
Though most of the cases have been brought against larger plans, Schlichter warns that small plans and their advisors have the same duties and that the DOL is much more focused on costs than when he started working in the DC industry almost ten years ago. Though revenue sharing is fine, it can hide the fees paid which, if unreasonable, raise serious questions and exposes plans to legal liability.
Not said, over 50% of smaller plans use an advisor not experienced enough to properly advise on a DC plan which puts not only the advisor at risk but also the employer who hired that advisor usually without proper due diligence. As with funds and record keepers, advisors have the duty to make sure that their plan advisors is qualified, is performing their duties as a prudent expert and that the fees paid are reasonable best accomplished through an RFP.
Commenting on the Tibble v. Edison case where the Supreme Court ruled that plans have the duty to continually monitor funds notwithstanding the statute of limitations, Schlichter commented, “It takes about a minute” to make sure funds are appropriate for the plan. Commenting on ABB v. Tussey, the first case that went through trial, Schlichter noted that unlike the asleep at the switch cases like Tibble, this case was an egregious violation of the sole interest rule. The DC record keeper was providing corporate services for the payroll, DB and healthcare plans at a loss making up the difference on the 401k plan paid for by employees.
401kTV recently conducted a Master Class on the rash on 401k lawsuits which includes ways that plans can avoid legal cases which only promises to become more prominent with recent wins by plaintiff’s attorneys and the new DOL rule due out April 6th.
