Lawsuits Over Excess Retirement-Plan Fees on the Rise

 

By Alison L. Martin | June 25, 2020 at 09:30 AM

Almost every employer sponsoring a retirement plan should to be mindful of potential fiduciary liability under the Employee Retirement Income Security Act of 1974 (ERISA).

According to an article published by the America Bar Association, between increased regulatory scrutiny by the Department of Labor and private litigation brought by the ever-expanding plaintiff’s bar, ERISA lawsuits are at an all-time high.

One of the most significant ERISA litigation trends is “excessive fee claims.” In a nutshell, these allege that a retirement plan’s fiduciaries allowed the plan to overpay for recordkeeping and use expensive and underperforming investments. These claims can cost millions of dollars to defend, and settlements can reach tens of millions of dollars.

A financial services company that sponsors a retirement plan may be sued, along with its executives, for excessive fee claims even when they don’t provide any professional services to the plan.

This is because, as plan fiduciaries, they have a duty to ensure that plan fees and investments provided by third parties are reasonable. Moreover, pursuant to ERISA, plan fiduciaries may be personally liable for these losses and the plans do not provide indemnification for them.

What About Smaller Plans?

Although these claims were historically filed against fiduciaries of large plans, the last few years have seen an uptick in lawsuits against fiduciaries of smaller plans, including plans well under $100 million in assets.

It’s apparent that fiduciaries of smaller plans should no longer consider themselves immune from litigation risk.

With a surge in litigation, it’s important that all advisors, regardless of their or their client’s plan size, understand the recent trends pertaining to excessive fee claims and the characteristics that may make them more susceptible to litigation.

What can they do to protect themselves? Of course, plan fiduciaries should always act with care andundivided loyalty to the plan and its participants. And while there’s no foolproof way to avoid an excessive fee claim, there are a few steps that may help reduce exposure:

Click here to view the entire article via ThinkAdvisor.

Can robo advisors truly be 401(k) fiduciaries?

Technology from Vestwell, FiduciaryShield and Betterment’s recently announced Advised 401(k) are making it easier than ever for advisors to offer retirement plans to business-owner clients. By taking on much of the heavy lifting, these tools can make it look easy for any financial planner to moonlight as a retirement plan advisor.

But advisors thinking about entering the retirement plan space as a path to easy money should think twice before jumping in. Deciding to extend your niche market from serving doctors to serving doctors and dentists is one thing. Taking on the mantle of a fiduciary under ERISA is quite another.

The key question is whether a program that purports to give personalized advice to plan participants is using tools that are well-designed for that purpose. In 2015, not long after robo advisors arrived on the scene, the SEC’s Office of Investor Education and Advocacy and FINRA issued a joint investor alert discussing the risks and limitations of automated investment tools. They warned that robo advisors may rely on incorrect assumptions that do not apply to investors’ individual situations.

“Be aware that a tool may ask questions that are over-generalized, ambiguous, misleading, or designed to fit you into the tool’s predetermined options,” the alert stated.

The Massachusetts Securities Division has also expressed concern, stating in 2016 that robos, “cannot fully satisfy their fiduciary obligations” because of their depersonalized nature and inability to provide ongoing due diligence.

As far as I’m aware, no regulatory authority has ever brought an action based on a robo’s failure to meet applicable fiduciary standards, either under ERISA or the Investment Advisers Act of 1940. But advisors should be aware that this issue still lurks unresolved.

Click here to visit www.financial-planning.com and read the full article.

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Coronavirus (COVID-19) Regulatory Resources for Employee Benefit Plans

March 25, 2020

Coronavirus (COVID-19) Regulatory Resources for Employee Benefit Plans

The past week has brought an onslaught of changes for the world, including changes in U.S. federal legislation to address the COVID-19 pandemic.

ComplianceDashboard has compiled a list of resources we feel may aid your everyday. The resources provide access to the following:

  • COVID-19 information for advisers and employers.
  • A summary of the Families First Coronavirus Response Act (FFCRA).
  • A list of state websites where businesses and individuals may access state-specific guidance regarding legislation and government actions.
  • Links to federal agency sites including CMS, DOL, and IRS.
  • A listing (by most recent date of release) of articles from reputable sources re: employer considerations for benefit plans.

Click here to continue reading the full ComplianceDashboard Resource List.

 

 

Watch BidMoni Demo FiduciaryShield at FinovateFall 2019

FinovateFall 2019 was held in New York City from September 23-25.  Finovate showcases the top tech innovations and provides a unique insight into the future of the fintech industry.

BidMoni was selected as a product demonstrator for FinovateFall 2019 to demonstrate the many ways FiduciaryShield is changing how advisors engage the 401(k) market.

CEO Stephen Daigle provided a live demonstration of FiduciaryShield within the 7-minute Finovate format.

Click here to view the entire 7 minute demo!

Landmark Settlement in the Longest Running Erisa Lawsuit

ABB, Workers Get Early Approval for $55M 401(k) Settlement

Posted April 3, 2019, 1:08 PM
Landmark settlement in the longest running Erisa lawsuit, what were the conclusions:
  • Recordkeeping fees were excessive causing losses to participants (failure to bid and monitor service providers).
  • The plan replaced funds with proprietary, underperforming funds offered by the recordkeeper.
  • Indirect revenue received from funds must be paid back to plan participants.

 

This creates a foundation for breaches and penalties moving forward. Advisors and firms are going to be forced to change their way of doing business.

 

Click here to read the full story.