Over the years, we have seen numerous class action lawsuits against plan fiduciaries, starting with claims relating to mega 401(k) plans and, more recently, claims against the fiduciaries of very large University-sponsored, ERISA covered 403(b) programs. The allegations in these complaints vary, but, generally, include a breach of fiduciary duty claim alleging excessive fees were paid from plan assets for recordkeeping or other administrative services. Since the fees associated with certain investment offerings (called expense ratios) reduce the earnings on monies invested in those funds, these lawsuits also claim that investment funds with lower expense ratios should have been offered to plan participants. The outcome of these cases vary, depending upon who is sued and the specific allegations and facts. Through settlement or court decision, millions of dollars have been restored to plans and significant legal fees paid to plaintiffs’ counsel. While large or mega-sized plans have been the primary target for these lawsuits in the past, plans maintained by middle market companies are not immune from excessive fee litigation.

Plan sponsors cannot adopt and maintain a participant-directed retirement plan and then put it on auto-pilot. It is critical to understand who is the plan fiduciary (or fiduciaries) under the terms of your plan and who is really acting in a fiduciary capacity. The ERISA definition of fiduciary is functional. While a plan may say that the plan administrator is the employer or plan sponsor, a committee or human resource professional may be making all of the discretionary decisions with respect to the day-to-day operation of the plan. The plan may indicate that the plan sponsor is the fiduciary with discretionary control over the management of plan assets, but a committee or someone in the finance department is the de facto investment fiduciary for the plan. Your plan document should match up with your practice.

Establishing and maintaining good plan governance is essential to reducing the risk of an excessive fee case as well as other allegations of fiduciary breach. The adequacy (or existence) of a plan governance process starts with by asking the following questions:

• Who is acting as a plan fiduciary to your retirement plan?
• Is the individual or group of individuals performing fiduciary duties consistent with the terms of your plan?
• Has the plan sponsor formally delegated any fiduciary duties to others within your organization?
• Are plan fiduciaries and their respective duties and obligations specified in the plan document, itself?
• Do plan fiduciaries regularly review plan service providers, document the review process and the reasonableness of administrative expenses paid from plan assets?
• Do plan fiduciaries have a process in place to review the performance and cost of the investment funds offered under a participant-directed plan; is that process followed, and are all decisions about the selection, retention or replacement of investment options documented?
• Has the investment fiduciary hired an experienced investment consultant to assist with properly analyzing and understanding investment fees and investment performance?

Implementing and maintaining a good plan governance policy, regularly conducting both procedural and substantive due diligence with respect to service providers and investment offerings, and documenting the rationale for administrative and investment decisions will go a long way toward protecting plan fiduciaries from potential liability.