Nevin's Data "Points"

 When the Labor Department issued last month what it called “new guidance” that it further described as “the first time the department’s Employee Benefits Security Administration has issued cybersecurity guidance”—well, I, for one, was expecting… guidance.  However, rather than an advisory opinion, information letter or even a field assistance bulletin, it turned out instead to be three documents outlining what were termed “ best practices  for maintaining cybersecurity.” The issue of cybersecurity has, of course, loomed large in recent months, reportedly emerging as a focus in Labor Department audits  and as a point of contention [i]  in participant lawsuits. In fact, even the preamble to the final e-delivery regulations  stated a year ago that “…the Department expects that many plan administrators, or their service or investment providers, already have secure systems in place to protect covered individuals’ personal information.”  ...

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’...

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...

When I’m talking to plan sponsors (and advisers) about the challenges of being an ERISA fiduciary, I’m generally inclined to emphasize the awesome responsibilities that come with the “assignment”: the impact exerted on participant retirement savings; the admonition to ensure that fees paid by, and services rendered to, the plan are reasonable; the implications of the prudent expert rule; and the liability (and personal liability, at that), not only for your own acts, but for the acts of your co-fiduciaries (and hence an urgency around knowing who those co-fiduciaries are). I’m inclined to talk about the limitations of ERISA 404(c) in providing a shield against all that potential liability. I’ll remind them that the Labor Department considers them responsible for all participant-directed investments outside 404(c)’s provisions, and note how frequently participant directions tend to fall outside those provisions. I’ll tell them how important it is to read the plan document, and to make...

There was another judicial decision in another revenue-sharing case earlier this month—and another victory for a plan sponsor. The case was Loomis v. Exelon (see Another Plan Sponsor Win on Revenue-Sharing ), a case argued before the 7th U.S. Circuit Court of Appeals, which had previously weighed in on the case that appears to be setting the tone in most of these cases, “Hecker v. Deere & Co.” Hecker, as you may recall, involved a situation with a large, multi-billion-dollar plan that offered its participants access to a couple of dozen funds from a single provider alongside a self-directed brokerage window that afforded access to funds beyond that. The 7th Circuit dismissed that challenge, finding that the competitive forces of the market were sufficient to ensure reasonable fee levels for the specific funds on the menu, and that, if the participants felt otherwise, they could always pursue other options via the brokerage window. In Exelon, there was no brokerage window, though ...

Plan sponsors spend a lot of time wondering—and worrying—about the “right” way to do things. They rely on the guidance of experts, the insights of publications like ours, the black—though often gray—letter of the law, and sometimes they must rely on the occasionally contradictory adjudications of the courts. Those contradictions have been much in evidence in the series of 401(k) revenue-sharing lawsuits, which, IMHO, continue to suffer from what seems to be a confusing “flexibility” in judicial discernment regarding the standards of fiduciary responsibility and application of ERISA’s 404(c) safe harbors. In fact, it is only a matter of time until some plan sponsor somewhere files an injury claim for whiplash incurred from simply trying to keep up with the direction of these decisions. The most recent example was the case of Gerald George vs. Kraft Foods Global (see Appellate Court Sends Back Kraft Fee Case ), a case the 7th U.S. Circuit Court of Appeals remanded (albeit in a split ...

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 ...

For all the fuss about fees, a recent friend of the court filing by the Department of Labor reminds us that it’s not just what you pay, it’s what you get for what you pay. The amicus brief had the DoL once again weighing in on another in the series of revenue-sharing suits that have kept the industry stirred up since the first wave was filed in 2006. Once again, the DoL was expressing its sense that there were real, and triable, issues in the case, this one involving Exelon Corporation (see “ Solis Asks Court to Overturn Exelon Excessive Fee Case Decision ”). The DoL had previously expressed similar concerns about a similar dismissal in the same judicial district in a case involving Deere & Co. (see “ Hecker Fee Case Prompts Exelon Suit Dismissal ”)—a dismissal that was affirmed by the appellate court, and that the U.S. Supreme Court has refused to reconsider. Those concerns weren’t enough to influence the appellate court in the Hecker case, though it did result in a judicial ad...

Those who were wondering when—or perhaps if—the issues raised in those revenue-sharing lawsuits would ever actually be tried got a strong, affirmative response last week. This time, the 8th U.S. Circuit Court of Appeals found triable issues of fact in a case involving Wal-Mart’s 401(k) plan (“ 8th Circuit Says Wal-Mart 401(k) Suit Requires Further Discussion ”), sending the case back for another hearing by the trial court that had dismissed issues raised in the lawsuit, while also taking the time (at least in a footnote) to distinguish some of its findings from a similar case (Hecker v. Deere) that had failed to clear the bar in another circuit (see " The 'Burden' of Proof "). But, IMHO, what distinguishes the ruling in Braden v. Wal-Mart Stores Inc. from all the revenue-sharing cases that have been adjudicated thus far is that the 8th Circuit judges were willing to concede that the plaintiff had alleged facts that, at least on the surface, were sufficient to support ...

Being a plan fiduciary is a tough job—and one that, it’s probably fair to say—is underappreciated, if not undercompensated. In my experience, most who find themselves in that role (see “ IMHO: Duty Call ”) do an admirable job of living up to the spirit, if not the letter, of their responsibilities. Nonetheless, there are plenty of areas in which we could do a better job. In this week’s column, we’ll touch on the rest of my “10 things you’re probably doing wrong” list: 6. Thinking your plan qualifies for 404(c) protection—and misunderstanding what that means. Any number of studies suggest that many, perhaps most, plan sponsors think their plan meets the standards of ERISA 404(c ), a provision that ostensibly shields them from being sued for participant investment decisions, so long as certain conditions are met. On the other hand, industry experts are nearly uniform in their assessment that very few, perhaps no, plans meet those standards (though the courts have been somewhat more lib...

Recently the 7th Circuit responded to requests that it reconsider its opinion in the revenue-sharing/”excessive fee” case of Hecker v. Deere (see “7th Circuit Panel Limits Ruling’s 404(c) Effects” ). The case, of course, was one of the earliest in the litany of those cases to be filed in 2006, and the only one (thus far) to reach the appellate level. To date, the courts have, with little exception, dispensed with these cases harshly. Not that they aren’t entitled to do so, of course, and not that this particular generation of filings isn’t deserving of such treatment, IMHO. From the beginning, the plans targeted seemed better-designed to fill the pockets of plaintiffs’ counsel, if for no other reason than large employers frequently figure that it’s cheaper to settle than to fight (see “IMHO: Fighting Words” ). That said, the courts—including the 7th Circuit—seem to have a more “generous” view of what it takes to earn the protections of ERISA 404(c) than most ERISA lawyers I know. ...