HR Pulse - Fall 2007 - (Page 55)

Are You the Next Target? By Jeb Graham I n September 2006, www.plansponsor.com reported that a St. Louis law firm filed lawsuits on behalf of plan participants against seven large companies and their retirement plan committees, alleging various fiduciary failures related to fees and revenue sharing payments. Each situation purported slightly different abuses, but the common theme is that the plan sponsors failed to uphold their fiduciary responsibilities under ERISA with regard to understanding and disclosing fees charged against participant accounts…and furthermore, that participants were harmed by this lack of oversight. ters, “Plan sponsors and their committees may be vulnerable if they have not exercised appropriate oversight of fees.” While some fee arrangements being used by plans today may clearly be excessive, the issue in the lawsuits appears to be one of appropriate oversight and documentation rather than whether the fees are “too high.” Do these lawsuits have merit? If the retirement plan committees of these plan Brief descriptions of some of the allegations are as sponsors under fire had clearly established and docufollows: • Northrup Gruman asserts that the committee select- mented all the specific fees that were being passed on to ed “shadow” index funds in which participants were participants this probably would not have happened. charged fees for active management, but in fact Could we get sued over our 401(k) or received index funds. 403(b) fees? • Bechtel asserts that the committee allowed This is a question that many investment committees manipulation of the expenses within the master are now asking themselves. Perhaps the better question trust covering multiple plans, to the detriment of might be, “How can we best protect ourselves against a participants. • International Paper asserts that the committee used lawsuit specific to our plan fees?” As the spotlight is increasingly shined on fees, our misleading benchmarks to measure fees and investfirm has seen a significant increase in interest from ment performance. • Caterpillar asserts that the plan sponsor profited at retirement plan committees to conduct a formal fee analthe expense of participants by investing plan assets ysis and benchmarking project. The clients we have done such projects for have benefited in two meaningful ways. in Caterpillar Investment Management, a wholly First, a fee analysis conducted by an independent third owned subsidiary. party serves as documentation of the fiduciary oversight Since last fall, there have been a number of addiprocess, thereby mitigating the committee’s risk. Second, tional lawsuits filed in a similar vein, bringing the total the information is designed to increase the committee’s of such cases in process to about 20. negotiating leverage with the service providers and In my opinion, there are two important considerimprove overall results for plan participants. ations in looking at these lawsuits. The first is that the Our experience in the healthcare world has been that focal point appears to be a contention of insufficient 403(b) plans are more likely than their 401(k) counteroversight, rather than that of fees being excessive. This parts to experience problems with high fees, primarily is important because nowhere in any ruling issued by the DOL have I found specific guidance as to the defini- as a result of still being on outdated individual annuity tion of excessive 401(k) fees. Second, in many cases the platforms. Some service providers, particularly those that operate exclusively in the 403(b) world, have been slow investment committee was named in the lawsuit. to initiate the same type of product development that The law firms likely did enough investigation to has occurred on the 401(k) side. determine who the vulnerable targets were. Why were Research conducted by the International Foundation these particular employers targeted? According to attorney Fred Reish, named by 401kWire for Employee Benefit Plans suggests that, over the last decade, 403(b) plans have lagged 401(k) plans in terms as the most influential person in the retirement plan of product/service enhancements, thus producing less industry for 2006 and considered one of the leading attractive results for plan participants. Factors supporting authorities in the area of retirement plan fiduciary mat- 55 HR Pulse Fall 2007 http://www.plansponsor.com

Table of Contents Feed for the Digital Edition of HR Pulse - Fall 2007

Contents Executive Director’s Letter President’s Message HR Leader Profile: Lisa McDaniel Spotlight on Community Citizenship Culture of Engagement How Transparent Should Healthcare Compensation Be? The Value of Assessment Testing in the Recruitment Process Technology Dramatically Changes FMLA Compliance Creating a Magnetic Culture™ Taking It to the Hill: An Advocacy Update 401(k) / 403(b) Fee Lawsuits – Are You the Next Target? Compensation Offers – A Better Process Find It Again Pulse Points Who, Why and Where Conference Highlights Schedule at a Glance Keynote Speakers Social Events Conference Sponsors Exhibitors Index to Advertisers

HR Pulse - Fall 2007

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