Last year was a busy one for class action lawsuits and settlements against plan fiduciaries and it looks like 2016 is shaping up to be more of the same.
Three new and notable class action lawsuits against retirement plan sponsors were filed within the past couple of months. The complaints are all centered on excessive fees and the failure of plan fiduciaries to provide oversight of these expenses. And the same law firm behind three of the biggest settlements in 2015 (Lockheed Martin in July, Boeing in August, and Novant Health in November) is the driving force for the latest lawsuits.
Pledger v. Reliance Trust Co.
Attorneys for the firm of Schlichter, Bogard and Denton filed the first of the recent class action suits on December 23, 2015, against Insperity, Inc., an outsourced human resources services provider, and Reliance Trust, a discretionary trustee for the Insperity 401(k) Plan. The plan has around $2 billion in assets and over 85,000 active participants.
The allegations charge the plan’s trustees for breach of fiduciary duty and failure to act in the interests of plan participants for the excessive fees paid by participants to the plan’s in-house record keeper, Insperity Retirement Services. In addition, investments selected for the plan by Reliance Trust were the firm’s proprietary funds. These included a series of target date funds that were launched the week prior to inclusion in the plan’s investment lineup and had no performance history on top of their excessive fees.
Bell v. Anthem
The second class action suit came on December 29, 2015, against health insurer Anthem, charging its pension committee and board of directors with failure to carry out their fiduciary duty in not negotiating lower fees for the Vanguard funds included on their plan’s investment menu. The suit also claims recordkeeping fees paid to Vanguard were excessive for a plan of its size. Participants were charged between $42 and $94, compared with a more reasonable fee of $30 per participant for a similar size plan.
As a $5 billion plan, Anthem had leverage to bargain for lower recordkeeping charges and access to lower cost share classes, according to the lawsuit. In fact, the plan sponsor did move to the less expensive Vanguard share classes in July 2013. But the lawsuit is seeking to recover fees paid by participants in the higher cost share classes starting in 2010 to the date of the share class change in 2013.
Troudt v. Oracle
On January 22, 2016, Schlichter filed a class action lawsuit on behalf of Oracle Corporation 401(k) Savings and Investment Plan participants charging Oracle Corporation, the investment committee and other unnamed defendants who are company officers and/or members of the committee with breach of their fiduciary duties related to excessive fees paid for recordkeeping and administration to Fidelity. Again, this is a large plan with $12 trillion in assets and over 65,000 participants.
One of the items noted in the complaint that should be of particular interest to plan sponsors is that Fidelity has been the plan’s recordkeeper since 1993 and the participants have not been informed that these services were put out for competitive bidding during the past 26 years. A process of prudence that fiduciaries should follow includes doing this every 3 years.
Settlements Coming?
Last year, the Novant Health case was settled in fairly short order, before arguments were even made in court. I wrote about that case here. I am curious to see if any or all of these new cases will meet the same sudden fate. The risk of personal liability to plan sponsors for failure of fiduciary duty will likely prompt more trustees and plan committee members to push for early settlements to protect their own personal wealth and finances.
The procession of legal actions by Schlichter underscores the vigilance plan sponsors must continue to bring to their duties as fiduciaries. Many of the decisions a sponsor makes are available for public view, by anyone with internet access and the ability to locate a full Form 5500. That public access includes not only service providers and participants, but also attorneys who are skilled in navigating Department of Labor filings.
I advise plan sponsors to take a more deliberate approach in executing their fiduciary duties. Too often, I meet a plan sponsor who is wrapped up in the day-to-day management of their business and is unaware of the increased focus and litigation, especially class action, related to their fiduciary responsibilities.
You certainly can’t take your eyes off of the management of your business. But as a plan sponsor, you also must be cognizant of the risks you are exposed to, including personal liability, if you fail to provide fiduciary oversight and carry out your fiduciary duties. If you find yourself on the receiving end of a complaint, audit or lawsuit, then that very business reputation could be tarnished as a result.
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