Retirement Plan Fee and Investments Lawsuits Against Employers

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We imagine that all of our clients have seen the rather extensive press about the growing series of lawsuits being brought – often by “professional class action lawyers” — against employers and various retirement plan decision makers (e.g., Board investment committees, etc.) alleging that they have permitted their retirement plans to pay “excessive” administrative and investment-related fees and/or permitted poorly performing investments to remain in their plans.

In addition to this new entry into the fray by the plaintiffs’ bar, the Department of Labor also has aggressively focused on this issue in plan audits in the last year or two.

Most of the press has centered on a series of coordinated class action lawsuits being brought against decision makers of retirement plans in the higher education space, but a number of additional lawsuits have been brought in other industries and on a non-class action/single employer basis. (The tax-exempt employer environment is a particularly fertile area of attention for the plaintiffs’ bar, in light of its perception that volunteer board members do not have the time to focus on these fine details in addition to their core commitment with regard to mission.)  Although there are some unique historical aspects of some of the retirement plans of some higher education employers, the allegations by the plaintiffs in these cases easily could be cloned for any other employer that sponsors a retirement or welfare benefit plan.

Over the last decade, prudent advisors have urged employers to engage in steps to help protect themselves from these lawsuits. However, the diligence called for by the rules often wanes with the absence of meaningful enforcement.

For example, although employers commonly adopt investment policy statements (“IPSs”) and other procedural documents that are intended to be “blueprints” for compliance with the rules, we often find that a decision maker’s actual practice operates on instinct, rather than agreeing with the controlling documents, and this is a recipe for liability.

In light of the recent litigation and DOL activity, it is now more critical than ever that every employer that sponsors a retirement plan (whether ERISA-governed or not) regularly and vigorously benchmark the plan’s administrative and investment-related fees, select the plan’s administrative and investment service providers in a professional and prudent manner, and keep an extensive, permanent file memorializing its efforts in these regards. Employers must take this same approach to the selection and monitoring of investment options for their participant-directed retirement plans and to their related 404(c), QDIA and fee disclosure compliance efforts.