November 17, 2023 • 8 mins
As a 401(k) plan sponsor or fiduciary, how do you best prepare to ward off lawsuits? In this episode, Todd Zempel, Partner and Director of Retirement Plan Services for Gordon Asset Management, LLC , will equip you with the knowledge to handle these challenges. From the implications of these lawsuits to the robust solutions available, we're bringing you an enlightening conversation that's essential for every business owner or management team overseeing company retirement plans. Tune in, stay informed, and protect your business.
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Episode Transcript
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Intro (00:06):
Welcome to the Gordon Asset Management Podcast, a show
for savers, investors andentrepreneurs, helping you to
stay informed, invest wisely andachieve the unimaginable.
Please stay tuned until the endof the podcast for important
information and disclosuresabout our firm.
Now on to the show.
Todd Zempel (00:30):
Welcome to the podcast.
This is Todd Zempel, partnerand director of Retirement Plan
Services for Gordon AssetManagement.
Today is November 17, 2023.
We're here today to talk aboutthe surge in excessive fee
lawsuits targeted towardscompany-sponsored retirement
plans.
If you are a business owner orpart of a management team that
oversees your company'sretirement plan, this is
(00:52):
extremely important information.
But today we're not justtalking about the challenges.
We're here to discuss solutionsand how robust governance and
meticulous documentation can beyour best defense.
Excessive fee lawsuits in 401kplans are on the rise and have
become a prominent trend inERISA fiduciary litigation.
(01:14):
For plan sponsors,understanding the legal
landscape and the best practicesand governance is crucial in
effectively managing thesechallenges.
In recent cases, there are somekey insights that can be gained
.
One important defense that hasproven effective is the concept
of a prudent process.
In the case of Nunez versusBraun Medical, the plan
(01:34):
participants alleged that thefiduciary committee failed to
select low-cost investmentalternatives and monitor
record-keeping expenses,resulting in excessive fees.
However, the court ruled infavor of the plan sponsor,
emphasizing the committee'sconsistent and reasonable
actions in managing plan fees.
These actions included regularmeetings, engaging financial
(01:55):
advisors, maintaining aninvestment policy statement,
using a watch list forunderperforming funds and
monitoring share classes andrecord keeping fees.
This case highlights theimportance of adhering to a
prudent process in line withindustry practices.
Another notable trend is theincrease in excessive fee
lawsuits targeted towardssmaller plans.
(02:17):
In 2022, 40% of these lawsuitswere filed against plans with
less than $1 billion in assetsand 20% against plans with less
than $500 million.
This shift indicates that anyplan, regardless of its size,
can be a target for litigation.
Once faced with an excessivefee lawsuit, the costs can be
(02:42):
substantial.
Historically, the success rateof defendants at the motion to
dismiss stage has been low andremains inconsistent In most
settlements.
In 2022, the range was between$500,000 and $4 million, with
one reaching as high as $32.5million.
To effectively manage thesechallenges, there are several
(03:04):
best practices that plansponsors and fiduciaries should
consider implementing.
First and foremost, fiduciarieshave a duty of prudence.
This means carefully selectingand monitoring service providers
and ensuring that the feesbeing paid are reasonable for
the services provided.
It's important to note thatreasonable fees do not
(03:24):
necessarily mean the lowestprices, but rather ensuring that
the fees reflect the servicessize and needs of the plan, as
well as the investment optionsoffered For our clients.
At least annually, we not onlyaccount for all plan fees, but
also benchmark them against apeer group of similar size plans
(03:44):
.
We feel this is a best practice.
Periodically bidding outservices may also be prudent,
but the process can often betime and labor intensive.
Documenting the fiduciarygovernance process is crucial to
establishing good plangovernance and can be pivotal in
defending against claims offiduciary breach.
(04:05):
This includes keeping meetingminutes, committee procedures
and investment policy statementsup to date.
The fiduciary process should becustomized to the plan, taking
into account its size,participant needs and plan
sponsor resources.
Essential components of thiscustomized process include
forming a plan committee,holding regular meetings and
(04:26):
documented investment monitoring.
Plan fiduciaries and committeemembers should also have a solid
understanding of ERISA rulesand their responsibilities.
Regular updates and training onchanges in the law and industry
trends are advisable.
It may also be helpful to seekthe expertise of consultants,
legal counsel or investmentadvisors to support the
(04:46):
fiduciary process.
One popular way to help immunizeyour plan from poor investment
decisions is to hire a fiduciaryadvisor.
Advisors can generally servethe plan in one of two ways One
as an ERISA 338 investmentmanager or two as an ERISA 321
investment advisor.
A 338 is an investment managerand, by definition, is a
(05:10):
fiduciary because they takediscretion authority and control
of the plan's assets.
A 321 advisor does not takediscretion or control over the
assets, but rather makesrecommendations to the plan's
sponsor, who then decides toimplement those recommendations
or not.
Erisa 316 is another popularoption.
(05:31):
Erisa 316 describes a namedfiduciary that has the authority
to control and manage theoperation and administration of
the plan.
A 316 fiduciary is often athird-party administrator that
takes on crucial administrativeresponsibilities.
This includes ensuring theplan's compliance with ERISA
regulations, interpreting plandocuments and often making
(05:54):
decisions about the plan'soperation.
The key here is that a 316fiduciary shoulders the
responsibility and liability forthese administrative tasks.
Although that sounds fantastic,the devil is in the details.
Oftentimes, 316 arrangementsare footnoted with language that
puts the liability back on theplan's sponsor for bad data or
(06:16):
anything out of the norm.
Great marketing, absolutelyActual help Maybe, but it
depends on the details of theagreement.
By staying informed andadhering to a diligent and
documented fiduciary process,plan sponsors and fiduciaries
can position themselves toeffectively ward off potential
lawsuits.
(06:36):
This not only safeguards theinterests of plan participants,
but also helps to insulate theplan's sponsor and fiduciaries
from potential liability andcostly legal expenses.
If you have questions or ifyou'd like to learn more about
how we can help you implementstrategies to help reduce your
potential liability, pleasereach out to us at wealthqbcom.
Outro (07:20):
Opinions expressed are those of the podcast guests and
don't necessarily reflect thoseof Gordon Asset Management LLC,
its producers, hosts or guests.
Information presented shouldnot be construed as tax, legal
or investment advice or arecommendation or solicitation
for the sale of any product orstrategy.
Investors are encouraged toseek advice from qualified
(07:41):
professionals to determinewhether any information
presented may be suitable fortheir specific situation.
Investments involve risks.
Neither Gordon Asset ManagementLLC nor its podcast
participants shall be liable forlosses resulting from decisions
based on information orviewpoints presented on this
podcast.
Welcome to the Gordon Asset Management Podcast, a show
for savers, investors andentrepreneurs, helping you to
stay informed, invest wisely andachieve the unimaginable.
Please stay tuned until the endof the podcast for important
information and disclosuresabout our firm.
Now on to the show.
Todd Zempel (00:30):
Welcome to the podcast.
This is Todd Zempel, partnerand director of Retirement Plan
Services for Gordon AssetManagement.
Today is November 17, 2023.
We're here today to talk aboutthe surge in excessive fee
lawsuits targeted towardscompany-sponsored retirement
plans.
If you are a business owner orpart of a management team that
oversees your company'sretirement plan, this is
(00:52):
extremely important information.
But today we're not justtalking about the challenges.
We're here to discuss solutionsand how robust governance and
meticulous documentation can beyour best defense.
Excessive fee lawsuits in 401kplans are on the rise and have
become a prominent trend inERISA fiduciary litigation.
(01:14):
For plan sponsors,understanding the legal
landscape and the best practicesand governance is crucial in
effectively managing thesechallenges.
In recent cases, there are somekey insights that can be gained
.
One important defense that hasproven effective is the concept
of a prudent process.
In the case of Nunez versusBraun Medical, the plan
(01:34):
participants alleged that thefiduciary committee failed to
select low-cost investmentalternatives and monitor
record-keeping expenses,resulting in excessive fees.
However, the court ruled infavor of the plan sponsor,
emphasizing the committee'sconsistent and reasonable
actions in managing plan fees.
These actions included regularmeetings, engaging financial
(01:55):
advisors, maintaining aninvestment policy statement,
using a watch list forunderperforming funds and
monitoring share classes andrecord keeping fees.
This case highlights theimportance of adhering to a
prudent process in line withindustry practices.
Another notable trend is theincrease in excessive fee
lawsuits targeted towardssmaller plans.
(02:17):
In 2022, 40% of these lawsuitswere filed against plans with
less than $1 billion in assetsand 20% against plans with less
than $500 million.
This shift indicates that anyplan, regardless of its size,
can be a target for litigation.
Once faced with an excessivefee lawsuit, the costs can be
(02:42):
substantial.
Historically, the success rateof defendants at the motion to
dismiss stage has been low andremains inconsistent In most
settlements.
In 2022, the range was between$500,000 and $4 million, with
one reaching as high as $32.5million.
To effectively manage thesechallenges, there are several
(03:04):
best practices that plansponsors and fiduciaries should
consider implementing.
First and foremost, fiduciarieshave a duty of prudence.
This means carefully selectingand monitoring service providers
and ensuring that the feesbeing paid are reasonable for
the services provided.
It's important to note thatreasonable fees do not
(03:24):
necessarily mean the lowestprices, but rather ensuring that
the fees reflect the servicessize and needs of the plan, as
well as the investment optionsoffered For our clients.
At least annually, we not onlyaccount for all plan fees, but
also benchmark them against apeer group of similar size plans
(03:44):
.
We feel this is a best practice.
Periodically bidding outservices may also be prudent,
but the process can often betime and labor intensive.
Documenting the fiduciarygovernance process is crucial to
establishing good plangovernance and can be pivotal in
defending against claims offiduciary breach.
(04:05):
This includes keeping meetingminutes, committee procedures
and investment policy statementsup to date.
The fiduciary process should becustomized to the plan, taking
into account its size,participant needs and plan
sponsor resources.
Essential components of thiscustomized process include
forming a plan committee,holding regular meetings and
(04:26):
documented investment monitoring.
Plan fiduciaries and committeemembers should also have a solid
understanding of ERISA rulesand their responsibilities.
Regular updates and training onchanges in the law and industry
trends are advisable.
It may also be helpful to seekthe expertise of consultants,
legal counsel or investmentadvisors to support the
(04:46):
fiduciary process.
One popular way to help immunizeyour plan from poor investment
decisions is to hire a fiduciaryadvisor.
Advisors can generally servethe plan in one of two ways One
as an ERISA 338 investmentmanager or two as an ERISA 321
investment advisor.
A 338 is an investment managerand, by definition, is a
(05:10):
fiduciary because they takediscretion authority and control
of the plan's assets.
A 321 advisor does not takediscretion or control over the
assets, but rather makesrecommendations to the plan's
sponsor, who then decides toimplement those recommendations
or not.
Erisa 316 is another popularoption.
(05:31):
Erisa 316 describes a namedfiduciary that has the authority
to control and manage theoperation and administration of
the plan.
A 316 fiduciary is often athird-party administrator that
takes on crucial administrativeresponsibilities.
This includes ensuring theplan's compliance with ERISA
regulations, interpreting plandocuments and often making
(05:54):
decisions about the plan'soperation.
The key here is that a 316fiduciary shoulders the
responsibility and liability forthese administrative tasks.
Although that sounds fantastic,the devil is in the details.
Oftentimes, 316 arrangementsare footnoted with language that
puts the liability back on theplan's sponsor for bad data or
(06:16):
anything out of the norm.
Great marketing, absolutelyActual help Maybe, but it
depends on the details of theagreement.
By staying informed andadhering to a diligent and
documented fiduciary process,plan sponsors and fiduciaries
can position themselves toeffectively ward off potential
lawsuits.
(06:36):
This not only safeguards theinterests of plan participants,
but also helps to insulate theplan's sponsor and fiduciaries
from potential liability andcostly legal expenses.
If you have questions or ifyou'd like to learn more about
how we can help you implementstrategies to help reduce your
potential liability, pleasereach out to us at wealthqbcom.
Outro (07:20):
Opinions expressed are those of the podcast guests and
don't necessarily reflect thoseof Gordon Asset Management LLC,
its producers, hosts or guests.
Information presented shouldnot be construed as tax, legal
or investment advice or arecommendation or solicitation
for the sale of any product orstrategy.
Investors are encouraged toseek advice from qualified
(07:41):
professionals to determinewhether any information
presented may be suitable fortheir specific situation.
Investments involve risks.
Neither Gordon Asset ManagementLLC nor its podcast
participants shall be liable forlosses resulting from decisions
based on information orviewpoints presented on this
podcast.
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