INSIGHTS

ERISA Settlement Mandates Fees and Independent Fiduciary Oversight

 

 

In a recent ERISA class action settlement, a 401(k) Plan sponsor with close to $2 billion in assets was forced to pay millions of dollars in damages and appoint an independent third-party fiduciary to oversee aspects of their plan. For all plan sponsors, this introduces the real possibility they could be forced to engage independent oversight for their retirement plan.

It makes sense. Managing retirement plans is much more complicated than it used to be. There is a field of landmines that didn’t exist in years past. And litigation is on the rise, having already forced plan sponsors to pay more than $1 billion in recent years.

Experts say there’s more trouble on the way. The next wave of litigation is expected to focus on Target Date Funds and their increasing use as default investment options. And it won’t just affect the larger plans. Recent trends have shown that plans with $100 million or less can be targets.  Plan sponsors argue that they’re capable of their own retirement plan management, but the courts increasingly disagree.

While most lawsuits contest the high fees of investment offerings, court decisions really come down to whether the sponsor has fulfilled its fiduciary duty to the plan participants. Since this falls ultimately on the shoulders of retirement plan fiduciaries, it’s an easy call for courts to mandate the involvement of an independent third party.

Progressive sponsors will look to get ahead of the change. To avoid the combined costs of legal fees, management time, and reputational damage, they will look for their independent fiduciary oversight on their terms.

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