Retirement plans seem simple in theory – utilize money management strategies to save for the future. Yet the goal of a work and a worry-free future has become a legal woe for many. Why is retirement litigation on the rise, and what can you do, as an employer to protect yourself?
A Breach of Fiduciary Duty
ERISA (Employee Retirement Income Security Act) holds agents to high standards for making decisions that benefit your best interests. If money managers break those responsibilities and demonstrate a lack of good intent, then they may breach fiduciary duty. It’s a serious charge, whether resulting from accidental errors, a change in roles, or deliberate deception.
Common Reasons for Retirement Litigation
Large well-known firms and smaller agencies are all liable for committing fiduciary offenses. Pensioners commonly cite the following reasons for breaching their trust and mishandling their money:
- Hidden or extraneous fees
- Disappointing investments and/or stocks not yielding high enough cash dividends
- Improper revenue sharing – fees not fairly adjusted to account for revenue percentages also paid out
- Advice or suggested investment options more beneficial to others
Consumers: Educate Yourself about Plan Details
As a participant or investor in a retirement plan, you need to fully comprehend everyone’s role in your savings plan. Should there be a question of conduct, who exactly is the “party of interest”? Is the service provider, or an adjunct committee responsible for poor stocks or additional fees? Although the aforementioned common litigation allegations sound reasonable, legal analysis doesn’t always agree. The October 2017 PLANADVISOR National Conference was one of many recent panels focused on the rise of retirement litigation; Fidelity Investments winning a dismissal of the lawsuit brought against them was amongst the highlighted topics. The courts determined that Fidelity was not at fault for offering high-class share options through the Delta Family-Care Savings Plan. Delta’s handbook defined them, not Fidelity, as controlling share choices, and participants were not restricted to only certain providers. Unexpected occurrences, such as the legal issues of raising grandchildren, may require tapping into retirement savings. This is where reading the fine print is necessary, regardless of how mundane it may seem. Alternatively, consult an attorney experienced in business and financial law, to review a plan’s minute details. What are all of the fees, penalties, and protocols of your defined benefit plan, or your defined contribution program? What does the gap analysis, which checks for a plan’s compliance, say about your provider?
Agencies: Adhere to Ethics and Regulations
If you’re a savings plan sponsor, you shouldn’t rely solely upon a gap analysis rating to keep you in check. Conduct your own reviews to see how investments are succeeding or failing, and what changes, if any, should be made. Ask the following:
- Do you have an ISP, Investment Policy Statement? If not, why?
- Are you adhering to fee disclosure regulations to the fullest?
- Are all administrative and revenue fees fair?
- Is there a range of share classes, to fit various budget needs and preferences?
- Are you limiting options to certain bundled services, which may be construed as a conflict of interest?
Retirement litigation doesn’t have to be a feared term for pensioners or for companies. Avoid the possibilities by providing and subscribing to a plan full of transparency, candor, and clearly defined roles and obligations. PHOTO: 401kcalculator.org / CC0 Public Domain