Working With Financial and Fiduciary Experts

I am delighted to join the panel about how to work with financial and fiduciary experts on ERISA (and more broadly, investment management) cases. This panel, entitled "Expert Coordination: Working With Financial and Fiduciary Experts," is part of the upcoming 7th National Forum on ERISA Litigation. Produced by the American Conference Institute, this Chicago event will run from April 28 to April 29, 2014. I will speak from 10:45 am to 11:35 am on April 29, 2014. See below for more details.

Many ERISA litigators will admit that the quality and communication skills of an economic expert can greatly impact the outcome of a case. Getting the right expert(s) in place sooner than later can be a distinct advantage. When that does not occur, important items may be excluded from discovery or pre-motion analysis. This panel will focus on the challenges associated with tight client budgets, working with multiple experts, knowing when to bring an expert(s) on board and evaluating how much information to share.

Fiduciary Duty is More Than Numbers

As a published author, I am constantly assessing what has appeal to readers. I try to write about topics that are relevant and timely and welcome feedback. Click here to send an email with your suggestions. As a financial expert, I continuously seek to stay on top of what is being adjudicated. As a risk manager, I regularly evaluate what might have been done differently when things go seriously awry.

What I have noticed is that enumeration seems to offer comfort. Lists of this or that are common to many best-selling books and widely read articles. A trip to the Inc. Magazine website today illustrates the point. Consider this excerpted list of lists:

The popularity of laying out "to do" items extends to the retirement industry as well. For example, Attorney Mark E. Bokert provides insights in his article entitled "Top 10 ERISA Fiduciary Duty Exposures - And What to Do About Them" (Human Resources - Winter Edition, Thomson Publishing Group, 2007). His list of vulnerabilities - and prescriptive steps to try to avoid liability - includes the following:

  • Identify who is a fiduciary and making sure that they are properly trained;
  • Create a proper process by which investments are selected and monitored;
  • Monitor company stock in a 401(k) plan and consider whether to appoint an independent fiduciary;
  • Assess the reasonableness of "like" mutual funds versus existing plan choices;
  • Ensure that communications with plan participants are adequate;
  • Undertake a thorough assessment of vendors and review their performance thereafter;
  • Assess whether 401(k) deferrals and loan repayments are being made in a timely fashion;
  • Identify the extent to which service providers enjoy a float and whether they are entitled;
  • Understand what is allowed in terms of providing investment advice to participants and abide by the rules accordingly; and
  • Critically evaluate whether auto enrollment makes sense and the nature of any default investment selection.

One could easily break out each of the aforementioned items into sub-tasks and create appropriate benchmarks to ascertain whether fiduciaries are doing a good job. Indeed, ERISA attorneys are the first to invoke the mantra of "procedural process" as a cornerstone of this U.S. federal pension law. Importantly however, relying only on numbers is not sufficient. Increasingly legal professionals and regulators are asking that process be demonstrated and discussed. Expect more of the same in 2013. Analyses and expert reports may be deemed incomplete if they do not include a deep dive of the fiduciary decision-making process that took place (or not as the case may be).

ERISA Litigation Against Service Providers

Seyfarth Shaw ERISA attorneys Ian Morrison and Violet Borowski wrote an interesting blog post about what they describe as a discernible growth in lawsuits "filed by (or on behalf of) ERISA plans (sometimes class actions) against investment providers for charging excessive fees or otherwise gleaning improper profits from investments used in ERISA plans."

What they point out as noteworthy is the fact that the plans' fiduciaries frequently have no involvement in filing a complaint against a service provider(s) since several courts have allowed plan participants to seek redress without getting permission or even having an obligation to inform a company sponsor. 

At first blush, they offer that this situation may seem benign and possibly even helpful to a sponsor if the result of litigation against a service provider(s) results in reduced costs for everyone. The plot thickens however if a participant's complaint and related discovery later leads to legal scrutiny of a plan's fiduciaries, alleging that they knew about problems but did little or nothing to rectify a "bad" situation.

Attorneys Morrison and Borowski point out the challenges that fiduciaries must confront when a participant(s) files a lawsuit.

  • "Do they join with the service provider on the theory that a common defense is the best defense?
  • Should they join the participant plaintiffs in attacking the provider and at the same time potentially implicating themselves?
  • Or, should they remain on the sidelines, potentially risking being sued for taking no post-litigation action to recover for the provider's alleged breach?"

According to "Wait, You Mean My Plan Is A Plaintiff?" (May 24, 2012), attorneys Morrison and Borowski suggest that plan sponsors set up Google alerts to track any lawsuits that involve a company's benefit plan(s).

As an expert who has been involved in service provider cases, Dr. Susan Mangiero adds that a good offense is to conduct a comprehensive review of agreements on a regular basis. Should litigation occur and an expert is engaged, that person(s) will likely have to review whatever communications were provided to plan participants during the relevant time period as well as the contracts between the plan sponsor and a vendor(s). Another prescriptive course of action is to ensure that communications are robust, especially now with new fee disclosure rules in place.