Tip for January 2019
A large employer recently fended off a lawsuit that accused it of violating various fiduciary responsibilities under ERISA. The defense employed by the employer is a template for risk management excellence.
The winning defense was based on a simple formula, which all ERISA plan sponsors, both large and small, should adopt and be ready to activate.
The list of complaints in the lawsuit mimic a pattern of accusations that are now common in fiduciary class action lawsuits.
If you’ve ever wondered what your organization needs in order to defend itself if the need arose, this issue of TIPS reveals the secret.
A Winning Defense Proves it’s all About “Process”
Dozens of class-action lawsuits have been filed against employers since 2015 alleging violations of their fiduciary duty to their employees. The allegations are eerily the same in case after case.
Among the many fiduciary lawsuits filed over the last 30 months, American Century is one of the few that have made it to trial. Chief Judge Greg Hayes in the U.S. District Court for the Western District of Missouri concluded that “After carefully considering all of the evidence presented at trial the Court finds Plaintiffs failed to prove Defendants breached any fiduciary duty to the plan participants.”
Four disciplined activities, consistently performed by the plan fiduciaries led Judge Hayes to his decision.
- The plan’s fiduciaries received “training and information about their fiduciary duties, including a Fiduciary Toolkit.”
- A committee of executives and managers was formed that oversaw the plan’s operations and met three times a year in scheduled sessions.
- The committee showed documented evidence that it discussed the composition of the plan’s investment lineup to ensure that it covered the entire risk/reward spectrum without duplication.
- From 2014 on, the committee demonstrated that it reviewed expenses that the participants paid for investment related services taking into account both actual costs and the quality of services delivered by all of the plan’s vendors.
The Key Takeaway for ERISA Plan Fiduciaries
Traditional risk management programs for ERISA rely heavily on operating levers with vendors for compliance assurance. That strategy simply wasn’t designed for the challenges facing employers today.
The Court’s ruling in the American Century case demonstrate how critical a “prudent process” can be in fending off breach of fiduciary duty lawsuits. Employers will find it difficult to operate safely in today’s rough and tumble litigation era without assessing their ERISA plan oversight programs.
FiduciaryGRC is an excellent prudent process that adheres to a compliance framework developed by the Investment Fiduciary Leadership Council. Participants in the IFLC’s work consisted of a constituency made up of legal experts, C-level human resources executives, with guidance on the fiduciary responsibility of ERISA plan sponsors published by the U.S. Department of Labor. Check out the handbook at IFLC’s website.
