Plan Progress: Lessons from Litigation

With so many retirement plans facing lawsuits, it can be difficult for plan sponsors to keep up with what’s happening in the courts—and know what it means for them.

PLANSPONSOR’s recent Plan Progress Series webinar, “Lessons From Litigation,” featured legal experts who deal with such litigation and other Employee Retirement Income Security Act (ERISA) matters daily. Lars Golumbic, principal at Groom Law Group, and Kim Jones, partner and co-leader of the ERISA Litigation Team at Faegre Drinker, reviewed recent lawsuits and discussed what’s important for sponsors to keep in mind. 

Golumbic began by re-examining past cases, noting that there has been a rise in what he called “cookie cutter” complaints, or small grievances filed by the same firms that have many similarities, along with an increase in Form 5500 disclosure requirements for employers. “There’s a bull’s-eye on the backs of many of the plan committees managing these 401(k)s or 403(b)s,” he observed.

Other recent ERISA lawsuits have accused recordkeepers of being affiliated with investment options, claimed plans are offering too few or too many investment options, questioned the track record of a particular investment, scrutinized and focused on index funds, and challenged share class choices, Golumbic said.

Jones said she’s seen a rise in claims related to cybersecurity issues and alleged thefts of 401(k) plan assets. To avoid litigation in these sectors, she recommended plan sponsors speak with their recordkeepers about their processes and how they handle cybersecurity. “Ask them what their processes are or if they have any history of litigation on their cybersecurity practices,” she said. 

Both Jones and Golumbic warned that smaller firms have been seeing more claims in recent years and that ERISA litigation is moving down market. Jones said some law firms may see enough success with a settlement that they are encouraged to file complaints against mid-market and small employers. “It’s a good reminder to everyone that all plans are being targeted; it’s not just the big fish,” Golumbic said.

The two highlighted best practices plan sponsors can use to defend a plan in case of future litigation. Sponsors’ ability to show a diverse mix of investments in the plan is a sure sign of prudence, as was shown in a case filed against Northwestern University’s 403(b) plan, Golumbic said. He also said sponsors should be able to show that they documented their decisions and committee meeting minutes, which will help support a defense.

Jones stressed the importance of a retirement plan committee member’s role, noting that members should not blindly agree to plan decisions. To mitigate this, she recommended that committee members receive quarterly reports ahead of time, so they have enough time to think through options.

“They have to be able to thoroughly talk about them throughout the meeting. You want a committee that is thoughtful and engaged,” she said.

While ERISA does not require them, conducting regular requests for proposals (RFPs) could be an indication that employers are taking action to pay appropriate recordkeeper, adviser and investment fees. Jones recommended employers conduct RFPs periodically, about every three to five years.

Golumbic agreed, adding, “An RFP is helpful to show this periodic solicitation that you’re testing the market and that you’re still within the market to see what investments are there.”

If a plan sponsor does face litigation, Golumbic recommended it organize clear documentation of the process its plan fiduciaries go through, its meeting minutes, and the presentations it’s received from investment consultants—including those on benchmarking of investment performance and added expenses. Also, a plan sponsor should understand what information is in its investment policy statement (IPS), and whether the company is currently following the guidelines in it, he said.