Compliance

PSNC: Avoiding Lawsuits

It’s often simply a lack of oversight and processes not followed.

By Judy Faust Hartnett editors@plansponsor.com | June 05, 2015
Before the Enron scandal that resulted in the increased accountability of auditing firms to remain unbiased and independent of their clients, there was relatively little litigation in the retirement plan arena. But this has changed, as was the perception of 64% of attendees polled at the PLANSPONSOR National Conference in Chicago, who indicated that litigation risk is increasing in this industry.

Jamie Fleckner, a partner at Goodwin Procter LLP, said “plaintiff’s lawyers have become more interested in lawsuits because of the increased assets in defined contribution (DC) plans, with the focus of the suits against plan sponsors and providers.”

But lawsuits also arise when problems come up with loans, deferrals and distributions according to Scott Liggett JD, Director, ERISA oversight, at Lawing Financial Inc. Qualified Plan Advisors.

“A lot of times it’s simply issues with day-to-day activities of the plan and a lack of oversight and processes not followed," Liggett said. "This is above and beyond fee share class issues.”

In order to get processes in place, Fleckner said, a plan sponsor can hire lawyers or independent fiduciaries, but this is not always feasible, especially for small plans.

“Or plan sponsors can get an investment policy statement (IPS) to help manage the plan," Fleckner said. "But importantly, if you create the document, you must always consider it and not just put it on the shelf.

What does a quality document look like? Liggett said: “You don’t want to paint yourself into a corner. At the end of the day, those who look at plan documents such as an IPS, need to have them be understandable. At the same time, they should not be overgeneralized—not when or what needs to be done, for instance, that does not help.”

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