Retirement Plan Lawsuits | Plan Fiduciaries | Ohio CPA Firm | Rea CPA

When Fiduciaries Fail To Put Participants First, The Legal System Takes Notice

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Large universities are not the only organizations in the legal crosshairs and it won’t be long before we hear about similar cases plaguing large and small companies throughout variety of industries. Read on to learn more.

Fiduciaries are learning the hard way that when it comes to managing their retirement plans they better have the best interests of participants in mind or face legal action. At least that’s been the scenario at quite a few universities lately. And by the time the dust settles, it’s likely that institutions of higher education won’t be the only employers appearing in court.

Lawsuits claiming excessive investment and recordkeeping fees associated with the management of retirement plans continue to be filed against large universities. While the majority of plans being targeted are 403(b) plans, 401(k) plans are under the microscope as well.

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The lawsuits allege that instead of using their bargaining power the universities effectively failed to act in the best interest of their benefit plan participants and beneficiaries – disregarding their fiduciary responsibility.

Citing a complaint, one article points out that “billion-dollar defined contribution plans … have tremendous bargaining power to demand low cost administrative and investment management services. The case alleges that instead of leveraging the bargaining power of both plans, [the plaintiff] caused the plans to pay unreasonable and greatly excessive fees for recordkeeping, administrative, and investment services. In addition, it claims that instead of using its sophistication to identify and select high-quality investments that benefited participants and beneficiaries, [the plaintiff] selected and retained expensive and poor-performing investment options that consistently and historically underperformed their benchmarks and similar funds.”

All retirement plans have at least one fiduciary – someone who is responsible for running the day-to-day operations of the plan. And when something goes wrong, like a lawsuit alleging excessive fees associated with management of the plan, the fiduciary is held responsible.

And don’t think that you can simply transfer responsibility to somebody else just by seeking help from an outside provider. A fiduciary can never completely eliminate their fiduciary responsibilities. That being said, a plan can (and often does) have more than one fiduciary, as the role itself is defined by a person’s actions – not job description.

The fiduciary must make sure that all fees paid by the plan are reasonable. Periodically benchmarking fees or requesting proposals from other providers are the only way to document compliance.

The responsibilities appointed to fiduciaries are not to be taken lightly and an intentional or unintentional breach of these responsibilities can (and obviously does) result in fines and legal issues. So, rather than crossing your fingers and hope that your plan is compliant, actively review and monitor the plan’s document and service providers. And perhaps the most important piece of advice, if you ever have a question, call us. We are trained in the process of plan governance and are happy to guide you in the management of your plan.

Large universities are not the only organizations in the legal crosshairs and it won’t be long before we hear about similar cases plaguing large and small companies throughout a variety of industries. Email Rea & Associates to learn more.

By Paul McEwan, CPA, MT, AIFA (New Philadelphia office)

By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)

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