There may be a whole new focus emerging with regard to excessive fee litigation.
Last week a reader shared with us an “Excessive Fee Questionnaire Regarding Defined Contribution Plans.” This document was reportedly presented to a plan sponsor of a $170 million plan—from its property and casualty insurer. That’s right—and this request was for information that was to be provided prior to renewing their P&C policy.
The questionnaire pointedly asked for a disclosure of:
- Any revenue or compensation from the use of proprietary funds or services.
- The recordkeeper(s) used by the plan, and whether they were compensated on a per capita or percentage of assets, and if the latter, to describe any per capita caps or rebates negotiated. Oh, and if none had been negotiated, to explain why not.
- The process for “evaluating, benchmarking, and monitoring the expense and performance of the plan’s investment options, including the frequency of such evaluation, the identity of any consultants used, and any contemplated changes in the investment options.”
- The 408(b) fee disclosures made to the plan.
More insidiously, the document not only asks if the plan offers any index funds as an investment option—but if not, to explain the rationale for not doing so. It also demands confirmation from “plans that offer mutual funds” that “you offer the least expensive share class available to the plan for each such fund”—and if not, to “explain the rationale therefore.”
This insurer also wants to know whether the employer has received “any inquiries or communications from any law firm regarding plan fees and expenses or the performance of plan investments,” any “online/social media solicitation of your employees to contact a law firm about their defined contribution plan fees or investments”—and, more specifically, whether there have been “any inquiries” from the law firms of Schlichter Bogard & Denton LLP, Nichols Kaster PLLP, or Capozzi Adler PC—“regarding any topic whatsoever.”
It’s not immediately clear why these questions are being asked as part of a P&C renewal—such claims would normally be associated with an Errors & Omission Policy, or with an ERISA rider, neither of which is reportedly part of this renewal. Nor is it associated with a request for fiduciary breach insurance, or a fiduciary liability policy.
At the very least, it’s a very detailed, and, under the circumstances represented, a somewhat suspicious request. It poses questions that imply presumptions of appropriate behavior with regard to index funds and share class selection, and plan design choices that have certainly drawn attention in recent litigation. Moreover, in demanding to know of “any inquiries” regarding three specific firms that have been active in such litigation, this insurer is clearly sensitive to trends in this area, though its application here seems odd at best.
Regardless, it’s something of which to be aware—and, if asked, to proceed with caution.
If you or your plan sponsor clients have received similar inquiries, please email me at [email protected].