The past 12 to 18 months have seen a burst of retirement plan litigation — from church plans, to financial institution plans, to stable value funds and more. Advisors have not usually been part of these cases, but that exclusion now seems to be coming to an end, says ERISA attorney David Levine.
“Advisors are now clearly on the litigation radar,” says Levine, a principal with Groom Law Group, Chartered, and regular contributor to NAPA Net the Magazine. “Given that it may just be a matter of when, not if, more are sued, now is the time to get ready.”
Why the focus on advisors? Levine cites several reasons:
- The “traditional” role of an advisor has changed. Fifteen years ago, an advisor may not have even been a fiduciary to the plans they advised, he notes, but, “With the final fiduciary rule, the boundary has shifted so that many more advisors are now fiduciaries than in the past.”
- More advisors than ever now directly manage investments for retirement plans. In fact, with the rise of outsourcing and ERISA section 3(38) services, not only plaintiffs’ lawyers but also the Department of Labor are looking at advisors more closely than ever, Levine observes.
- Advisors now play a larger role in retirement plans and are simply more visible.
Levine recommends taking these three steps:
Proactively evaluating your insurance is essential, Levine asserts. What does it cover? When does it kick in? Can you pick your counsel (and at what rates)? What is the maximum cover level? “While it is easy to go for the cheapest option or to forego insurance completely, given the complexity and demands of many of the plaintiffs’ lawyers’ current lawsuits, having some depth of resources and support is essential,” he advises.
Watch your agreements and review them regularly, recommends Levine, noting that the DOL’s fiduciary rule makes it harder to avoid fiduciary status. However, the rule does not mean that an advisor has to be a fiduciary for all activities a plan sponsor might engage in. It is important “to review your agreements to ensure that you address exactly how you are a fiduciary, where these limits lie, how you handle required disclosures (such as the new Best Interest Contract Exemption disclosures that some advisors will rely on), and how you document compliance with applicable legal requirements.”
Evaluate your processes and business relationships regularly. Agreements are a core activity, notes Levine, “But if your actual practices — both your own and how you work with other service providers in the industry — are inconsistent with your agreements and/or fail to follow ERISA’s evolving requirements, then you are still at risk.”
In addition to Levine’s regular “Inside the Law” column, the Fall issue of NAPA Net the Magazine includes our cover story on the impact of the DOL fiduciary rule on DCIOs and record keepers and NAPA’s 2016 Top 100 Wholesalers list. The issue also features insights from regular contributors Jerry Bramlett, Steff Chalk, Nevin Adams, Warren Cormier, Brian Graff, Don Trone, Sam Brandwein, Fred Barstein and Lisa Schneider.
To view Levine’s column, click here and select “Litigation Against Plan Advisors: It’s Here.” And to view a pdf of the full 64-page issue, click here.
