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Big Settlements and the Plan Advisor

It seems that every couple of months there’s a new “big name” settlement involving a retirement plan class action lawsuit. These settlements often involve eye-popping numbers — $10 million, $30 million, even $80 million. These lawsuits make for good discussion items in committee meetings and at industry conferences — but what should advisors really take away from them?

In a recent column in NAPA Net the Magazine, attorney David N. Levine offers some advice for plan advisors. “As you look at these cases,” he writes, “you should view each case in two steps: (1) what type of case led to the settlement; and (2) what does it mean to you and your clients?”

Levine, a principal with the Groom Law Group, Chartered, in Washington, DC, focuses on three areas of litigation:

  • Late Contributions. As the result of significant efforts to push auditors to focus on late contributions, today there is more focus than ever on what constitutes a “timely” contribution — which under DOL guidance is often “as soon as administratively practical,” Levine notes. “As an advisor, you can often help clients avoid this potentially costly error.”

  • Benefit Claims. Claims for benefits can often be small amounts unless a class action asserts a systematic deprivation of benefits that could lead to a large recovery for a plaintiffs’ attorney. “Given that advisors often play a key role in working with a record keeper and their plan document, you can help your clients avoid these risks,” according to Levine. “However, you should make sure they are not exposing themselves to liability for inaccurately developed plan design or, even worse, acting as an administrative fiduciary when they do not intend to do so.”

  • Excessive Fees. Plaintiffs’ lawyers are on the lookout for cases where they can make a claim that the fees paid by plan participants are excessive compared with what they deem to be a reasonable benchmark, Levine observes. Often these cases lead to the kind of large settlements we all read about in the news. While lawsuits normally focus on plan sponsor fiduciaries, some large lawsuits focus on advisors who are allegedly overpaid for their investment advice services — whether through direct compensation, revenue sharing or other arrangements. Advisors are well served to work to educate and help their clients review the advisors’ own compensation and to develop internal processes to document their compliance with their own fiduciary activities, Levine writes.

There is no way to perfectly predict where future litigation will lead, Levine concludes, “but by looking beyond the attention-grabbing headlines and focusing on the underlying issues, you can help steer your clients away from risk and protect your business from significant litigation and financial exposure.”

In addition to Levine’s regular “Inside the Law” column, the Winter 2015 issue of NAPA Net the Magazine includes the cover story on making the ROI connection between the bottom line and employee well being, as well as feature articles on robo-advisors’ entry into the 401(k) market and preparing for the SEC’s coming money market reforms. The issue also features insights from regular contributors Jerry Bramlett, Steff Chalk, Nevin Adams, Warren Cormier, Brian Graff, Don Trone, Joseph DeNoyior, Jania Stout, Fred Barstein and Lisa Greenwald Schneider.

To view Levine’s column, click here and select “Big Settlements and the Plan Advisor.” And to view a pdf of the full 52-page issue, click here.