Nevin's Data "Points"

So much of our lives have been disrupted by the COVID-19 pandemic—but the pace of 401(k) litigation, it seems, has, if anything, accelerated. Now, some may find the label “terror” in the title extreme. In fact, it hadn’t really occurred to me until I read the response of defendants to a suit slapped on Genentech Inc. and the plan fiduciaries of its $7.6 billion 401(k) plan in early October. In a response to that excessive fee suit, the defendants’ attorneys referred to this suit—and others like it—as “an  in terrorem  attack on fiduciaries and employers seeking sweeping monetary and injunctive relief geared toward disrupting employee benefit relationships and causing protracted, expensive litigation.”  “In terrorem,” Latin for “into/about fear,” has a legal context—a legal threat, really—one generally voiced in hope of compelling an action (or lack of action) without resorting to a lawsuit or criminal prosecution. It normally arises in regard to a provision...

 Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. And sometimes it’s just a good time to think about the things that give us pause—that cause a chill to run down our spine.  In that category, here are three things to ponder… Getting Sued Plan sponsors will often mention their fear of getting sued (actually, their advisors frequently broach the topic), and little wonder. The headlines are (still) full of multi-million dollar lawsuits against multi-billion dollar plans—the pandemic has, if anything, seemed to accelerate the pace. If relatively few seem to actually get to a judge (and those that do have—to date—largely been decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million dollar settlements. Oh, and not only has this been going on for more than a decade, the issues raised are evolving as well. It's not that the fear is unfounded—plan fiduci...

So, how much should the plaintiffs’ attorneys who wrangled a $12 million settlement receive for their time, effort and trouble? Well, if you’ve been keeping up with such things, you’ll do some quick math and arrive at a figure of $4 million since, after all, these class action suits [i] —undertaken on a contingent fee basis—generally produce a pay day of somewhere between 25% and 30% of the settlement amount. [ii] In this case, that’s the settlement amount requested by the law firm of Schlichter Bogard & Denton for their work in a suit involving Oracle Corp. and its 401(k) plan (over 6,300 hours—5,631.10 hours of attorney time & 696.5 hours of non-attorney time—according to the filing ( Troudt v. Oracle Corp . , D. Colo., No. 1:16-cv-00175, motion for attorneys’ fees 5/8/20). That’s aside from the requested reimbursement of what those same attorneys characterize as “reasonable out-of-pocket expenses of $410,501.60, [iii]  and $25,000 for each of the named clas...

Whoever said ignorance was bliss surely wasn’t talking about fiduciary litigation. While I’ve had the opportunity over the past decade and change to peruse plenty of filings and findings related to excessive fee suits, the recent amended filing in a case against New York University (NYU) included something new – a long list of statements and acknowledgements by plan fiduciaries that, according to the plaintiffs, “displayed an alarming lack of understanding of basic terms and principles in investment management and fiduciary best practices.” Indeed, one of the plan committee members was called out for their “remarkable unawareness of basic facts” relating to the plan. Now, one must take care in accepting the assertions in litigation at face value, and it’s too early to say if they – along with a response by the defendants – will carry the day with a judge. Still, it’s hard, more than a decade after the first of the so-called excessive fee cases were filed, to believe ...

Back in the 1990s, the ability to support a self-directed brokerage account (SDBA) capability was a widely utilized means of winnowing the field in a 401(k) search, and more recently, the option seemed to hold promise as a foil for excess fee litigation charges. But that could be changing. The SDBA option allowed participants to make investment choices outside the standard retirement plan menu – a big deal at a time when you could count the number of choices on two hands. Vanguard’s 2017 “ How America Saves ” report notes that one in six (17%) plans offer the SDBA option, though nearly a third (30%) of plans with more than 5,000 participants do. And while this amounts to nearly 3 in 10 Vanguard participants having access to the option, only 1% of these participants used the feature in 2016, and in those plans, only about 2% of plan assets were invested in the SDBA feature that year. PLANSPONSOR’s 2017 DC Survey pretty well mirrors those findings: 18.7% of plan sponsor respondents...

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what are the things plan sponsors are scared about? Getting sued. Plan sponsors will often mention their fear of getting sued, and little wonder. The headlines are full of multi-million-dollar lawsuits against multi-billion-dollar plans, and if relatively few actually get to a judge (and those that do are decided in the plan fiduciaries’ favor), they nonetheless seem to result in multi-million-dollar settlements . Oh, and not only has this been going on for more than a decade, the issues raised are changing as well. As a plan fiduciary, you can still be sued of course; and let’s not forget that that includes responsibility for the acts of your co-fiduciaries, and personal liability at that (see 7 Things an ERISA Fiduciary Should Know ). That said, those cases seem to involve a rather small group of rather large plans. Most plan sponsors won’...

Last week another of the so-called excessive fee lawsuits was settled – not adjudicated, mind you. Here are some factors that the targets of these lawsuits seem to have in common. Now, in fairness, most of these cases haven’t actually gone to court – and, by my count, most of the ones that actually get to court are won by the employers/plan sponsors. Even the Tibble case , which drew so much attention when it made it to the Supreme Court, eventually came out in favor of the plan sponsors (though they “lost” the Supreme Court decision). However, a lot of litigation has been filed over the past decade, and millions of dollars spent — reminding me of an old mentor’s admonition that you can spend a lot of money in court being “right.” That so many employers have decided that it is “cheaper” to settle for millions of dollars gives you some idea of the magnitude of these challenges. So, with that in mind – and with apologies to Jeff (“you might be a redneck…”) Foxworthy: Your plan m...

Among the assorted “idiot lights” that adorn my current car dashboard is one that alerts me to low tire pressure. It’s come in handy on precisely two occasions – one when a nail had punctured my tire (though I had already discerned that I had a problem from the sound of the flat tire nanoseconds before the light came on); the other when I had neglected to keep an eye on the tire pressure (which coincided with a day that I had let my daughter take my car to work). Other than that, it’s never really been on or an issue – or a help – until recently, when it came on, and stayed on, about 100 miles from home. Now my owner’s manual suggested that this behavior might be a sign of a bad sensor, and sure enough, (after 100 miles of driving angst) that was subsequently confirmed by my mechanic – who also informed us that it would cost a couple of hundred dollars to replace it. Perhaps needless to say, that light continues to illuminate my dashboard. Since the initial flurry of so-called “e...

The Five Ws (or as they are sometimes called, Five W’s and one H) are questions whose answers are considered basic in information gathering in a variety of settings. There are a lot of questions that plan fiduciaries should ask, but here are five W’s and an H that every new plan fiduciary — or every “old” fiduciary who is new to a plan — should ask. Who are the (other) plan fiduciaries? Fiduciary status is based on your responsibilities with the plan, not your title. If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), then you are a fiduciary to the extent of that discretion or control. And, if you are able to hire a fiduciary, then you’re (probably) an ERISA fiduciary because the power to put others in a position of power regarding plan assets is as critical — and as responsible — as the ability to make decisions regarding those investments ...

Every plan, and every investment committee, is unique — and yet, conducted properly, there are inevitably areas of commonality. As the quarter draws to a close and preparations for these meetings get underway, here are some questions that could enhance the discussion, if not the outcome, of your next meeting. 1. Do we really need to have all these funds on the menu? We know that participants tend to hold four or five funds on average, regardless of how many choices are on the menu. And for years we’ve known that the more choices participants have, the more difficult it is for them to make choices. (Remember the famous study about jam choices ?) Sure, it can be hard to let go of a fund, especially if some participants have invested money in that option. But what tends to happen over time is a kind of fund menu inflation, where new funds get added but old ones never leave. The funds on your menu should have a purpose. If they don’t — even if they once did — you aren’t doing anyon...

The headlines are all about revenue-sharing, conflicts of interest and statutes of limitation — but the things that are likely to get plans and plan sponsors in trouble are a lot more mundane. Here are seven that are more likely to gum up the works for your average plan sponsor. 1. Not following the terms of the plan document regarding the administration of loan provisions (maximum amounts, repayment schedules, etc.) or hardship withdrawals. Plan documents routinely provide that hardship distributions can only be obtained for certain very specific reasons, and that participants first avail themselves of all other sources of financing before applying for hardship distributions. (These conditions often are incorporated directly from the requirements of the law.) Similarly, loans are permissible from these programs only when they comply with certain standards regarding the amount, purpose and repayment terms. Failure to ensure that these legal requirements are met can, of course,...

After a dozen years here at PLANSPONSOR, effective November 1 , I have joined the Employee Benefit Research Institute (EBRI) in Washington, D.C., as Director, Education and External Relations, and Co-Director of the EBRI Center for Research on Retirement Income. I have long had a strong personal and professional admiration for the work that EBRI does in helping provide our industry with valuable and objective information and am thrilled to be able to be part of those efforts at this critical juncture. It has been my great privilege over this past decade and change to share with you some of my thoughts and observations in this space. You have been generous both with your comments and commentary on those musings, as well as our publications overall. While it’s not quite Thanksgiving, I thought I would dedicate this final “IMHO” to sharing some of the things for which I’m thankful: I’m thankful that the vast majority of plan sponsors continued to support their workplace retirement prog...

The year we began publishing PLANADVISER was a big year in many ways for me – it marked my twentieth wedding anniversary, it was the year my father passed away, the year my eldest went off to college for the first time, and also the year that “catch-up contributions” became an item of more-than-passing interest to me. In recent weeks, I’ve had occasion to think back on those past five years, and all that has transpired – the Pension Protection Act, QDIAs. the back-and-forth on fiduciary advisers, the first wave (and subsequent flurry) of revenue-sharing lawsuits, the growing emphasis on transparency and disclosure, the growth – and questions about – target-date funds, the “normalization” of a fiduciary role for retirement plan advisers, and more recently, the back-and-forth on an expanded fiduciary definition. Like many of you, I can still recall the tumultuous news of September 2008 – all hitting during our PLANADVISER National Conference that year. While it’s fun and interesting to ...

Last week brought to light an aspect of 401(k) litigation that doesn’t generally get a lot of coverage—and the participant-plaintiff was presented with a $50,000 bill. Now, at some level, this case was “just” another stock drop suit where some kinds of accounting issues contributed to a sudden (and ostensibly unexpected) drop in the price of company shares, including those held in the company’s 401(k) plan.1 These types of cases have cropped up one after another in the wake of the market downturn, and while the fact patterns behind the drop in share price vary slightly, the suits themselves allege pretty much the same thing: The plan fiduciaries kept the stock as a plan investment after it was no longer prudent to do so; to wit—after it suffered a precipitous drop in value. Most of these cases don’t seem to get very far, the courts either deferring to a “presumption of prudence” (see “IMHO: Prudent Mien?” or, as in this case, finding that ERISA 404(c)’s safe harbor provided shelter ...

Believe it or not, PLANADVISER Magazine is five years old this year. As such, we wanted to commemorate our fifth anniversary by recognizing as “legends” five individuals who had made a “significant personal impact to the retirement plan industry and the advisers who support it”. Now, perhaps you think that would be easy—but I can promise you it’s harder than it looks. And over the past several weeks we have gone through our list—moving some off, bringing others on, and “sleeping on it” more nights than you might think. First off, we limited the list to five individuals (for five years), and we also tried to focus in on the past five years. Limiting the list to five was hard enough (certainly once we got started), but trying to focus in on the period since we launched the magazine created an even more daunting task. Sure, it was “only” five years ago, but it’s amazing how much has happened during that time. That was the year the Pension Protection Act was signed into law, after all,...

Litigation—or more accurately, the fear of litigation—frequently serves to put us on notice. It’s why we find labels on hair dryers cautioning against bathtub use, why hemorrhoid cream comes with an admonition that it is not to be taken internally, why that fast food coffee cup is emblazoned with a note that the contents are, in fact, “hot.” And yet, we know that as silly as these warnings seem, somewhere along the line either someone actually engaged in the activity in question, or some corporate attorney was afraid that they might. There’s something of that concern still lingering around the target-date fund concept. Many participant-investors (and not a few plan sponsor fiduciaries) were caught unawares in 2008 when the hugely popular 401(k) investment option turned out to be as varied and unique in approach and assumptions as its marketing materials doubtless claimed it would be. Regardless, many plan sponsors—and probably most retirement plan participants—glossed over those di...