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Fiduciary Insurers Follow Plaintiffs’ Paths

Fiduciary Governance

Fiduciary liability insurers have apparently taken note of the recent surge in excessive fee suits—and are now making pointed inquiries based on the plaintiffs’ bar’s playbook.

This “new”[i] generation of questionnaires cover the same type questions outlined above, but now get into areas such as how fiduciaries are selected, as well as whether a periodic review is conducted (including benchmarking) to determine the reasonableness and competitiveness of fees of service providers—“in particular for record keepers”—as well as how often, how/is it documented, and “what is the record keeping fee for each plan when calculated on a per capita basis?” 

There are detailed questions about revenue-sharing, including whether a process is in place to recoup excess compensation for the benefit of participants and requests to describe all those processes. All want to see a copy of the 408(b) fee disclosure. 

However, these questionnaires aren’t just asking what; in some key litigation issues, they’re pressing for why (and why not). For example, they not only ask if the plan offers any index funds—but if not, they want to know the rationale. Similarly, they ask if the plan is offering the least expensive share class available to the plan for each such fund—and to explain the rationale if it is not. More pointedly, they press for a confirmation that the plan does not use any funds that are proprietary to an affiliate of the recordkeeper or investment consultant—and if that confirmation is not forthcoming, to “…please describe the process used to ensure the independent evaluation of such investments.” 

Some inquire as to whether there have been “any online/social media solicitation of your employees to contact a law firm about their defined contribution plan fees or investments”—but all ask about any communications by a law firm involving fees—and yes, some specifically inquire regarding inquiries from Schlichter, Bogard & Denton LLP, Nichols Kaster, PLLP, or Capozzi Adler, PC “regarding any topic whatsoever.” All firms that regular readers know well have been extraordinarily active in the recent surge in 401(k) and 403(b) excessive fee suits.

All in all, the various questionnaires not only follow the roadmap outlined by the plaintiffs’ bar in excessive fee litigation—they seem to presume as “right” or prudent the positions staked out by the plaintiffs—rather than the law—in these cases.

And it’s sure to cost plans—and plan fiduciaries—more.


[i] Last year we reported that some property casualty insurance renewals had some very specific questions about plan practices that had been cited in a series of excessive fee suits. Those questions—like the ones above—probed plan design features like the use of proprietary funds, recordkeeping fee charges based on assets versus participant head count, the use of index funds, and share classes. They also asked whether there had been “any inquiries” from the law firms of Schlichter Bogard & Denton LLP, Nichols Kaster PLLP, or Capozzi Adler PC—“regarding any topic whatsoever.” 

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