Process Can Trump ERISA Fiduciary Litigation
Ask any ERISA lawyer and they will tell you that fiduciary litigation is out of control. The recent 11 cases involving BlackRock target date funds are Exhibit A for that statement. Without digging deep into the facts, it is easy to say that the BlackRock funds have solid performance, and yet, plan sponsors are being sued. One easily would have that thought that these funds were unassailable investment selections.
The litigation is costly, time consuming and a distraction from executing business strategies. A survey of recent activity also shows it’s impossible to predict paths to success.
Lawyers like to extract principles from cases and offer advise based upon these principles. Fiduciary litigation is all over the map, there is little consistency. Given the deluge of cases, some industry experts predict that the system may implode under the unrelenting volume.
Chaos breeds opportunity. Independent fiduciaries may prove to be the bulwark against this wave of litigation.
However, the role of independent fiduciary is not a well understood concept in the industry these days. Independent fiduciaries are neither investment consultants or advisors nor are they lawyers providing legal advice. Instead, they can fulfill the role of the investment fiduciary of a plan sponsor. Armed with sophisticated investment analytic tools, a deep expertise with respect to the model of fiduciary prudence, and devoid of conflicts of interest, independent fiduciaries can lift a risky burden off the shoulders of retirement plan investment committees.
While the recent wave of litigation has produced few consistent legal principles for guidance, there are two old chestnuts of ERISA litigation: 1) courts are loathe, in hindsight, to second guess investment decisions, and 2) fiduciaries are obligated to exercise procedural prudence –e.g. a prudent process. The core competency of investment fiduciaries — prudence — relies upon this well settled case law.
An independent fiduciary firm with investment product expertise and steeped in best practices of procedural prudence would likely prevail against today’s throw-it-against-the-wall-and-see-what-sticks litigation environment. Plan sponsors should avail themselves of this expertise regarding their pension plans and 401(k) retirement plans.
Challenging times require new responses. The time has come for plan sponsors to leverage the core competency of independent fiduciaries: prudence.