ERISA Litigation Webinar Transcript Now Available

Seeking to accomplish a goal without having the right tools can result in frustration and possible failure. One solution is to get outside help when needed as long as the party being hired is knowledgeable and independent. Otherwise, what looks like a solution could quickly become a problem. Applied to ERISA plans, trouble might take the form of costly and time-consuming enforcement and/or litigation. Over the last few years, that reality has set in for more than a few employers.

Recognizing the importance of abiding by good governance principles, several of us agreed to speak as part of an educational webinar on April 8, 2015 about fiduciary tools, pitfalls and lessons learned. Sponsored by fi360 and entitled "ERISA Litigation and Enforcement: The Role of the Independent Fiduciary and Best Practices for Financial Advisors," this webinar joined Attorney Tom Clark (Counsel with the Wagner Law Group), Dr. Susan Mangiero (Managing Director with Fiduciary Leadership, LLC) and Mitchell Shames, Esquire (Partner with the Harrison Fiduciary Group) to address the (a) use of an independent fiduciary (b) clarifying what an outside vendor should be doing and (c) avoiding legal and economic landmines that have revealed themselves in prominent court cases and regulatory examinations.

If you missed the event, email contact@fiduciaryleadership.com for a copy of the slides. Click here to download the written transcript. Edited for clarity (and because the audio file is spotty in some places), this fourteen page document lays out cornerstone concepts and includes suggestions for plan sponsors and the advisers who serve them. These include, but are not limited to, the following:

  • The outsourced fiduciary market is growing in the United States and elsewhere.
  • When an outside party is hired by a plan sponsor, it is critical to specify responsibilities and contract accordingly. When an "expectations gap" exists, some critical tasks may be left wanting or not addressed at all.
  • When multiple fiduciaries are in place, a plan sponsor must ensure that a central person or team is adequately coordinating the efforts of all fiduciaries.
  • The newly proposed Conflict of Interest rule is predicted to materially change the landscape of fiduciary relationships between plan participants and retirement advisers.
  • A fiduciary status may exist due to either a contractual agreement or by virtue of the functions assumed by an individual or organization.
  • ERISA litigation is getting more attention these days, with a particular focus on fees, use of proprietary funds, revenue-sharing and disclosure of compensation paid to investment consultants, advisers and asset managers.
  • Demonstrating procedural prudence in part depends on what others in the industry are doing (or not doing as the case may be) and whether actions make sense for a given plan.
  • A renewed focus on disclosure and transparency is in the works according to comments made by the U.S. Department of Labor.
  • An independent fiduciary can be engaged for a singular transaction or for a task that continues over a long period of time.
  • An independent fiduciary can be engaged by either a defined contribution plan or defined benefit plan or both.
  • When there is a perception or reality of a conflict of interest, it may be prudent for an independent fiduciary to be engaged. The participants pay for said party because the independent fiduciary works on behalf of the participants.
  • The concept of co-fiduciary status is important and should be paid heed by any adviser who has an ERISA plan as a client.
  • Before delegating duties (to the extent allowed) to a third party, a plan sponsor should decide what financial issues should be vetted. Liquidity, the use of leverage by asset managers and asset allocation are a few of the many topics that a delegated fiduciary could be asked to measure, monitor and manage.
  • A fiduciary audit can be extremely helpful as a tool for identifying areas of improvement for an ERISA plan sponsor.

It may be no surprise that over 500 people registered for this educational webinar about fiduciary foibles. After forty years since its inception, ERISA remains a force that cannot be ignored.

ERISA Whistle Blowers

In the aftermath of the November 17, 2014 Strafford CLE webinar entitled ERISA Plan Investment Committee Governance, I asked several attorneys for their thoughts about whistle blower protection.

Attorney Stephen P. Wilkes, Of Counsel to The Wagner Law Group, took time out of a busy schedule to share his thoughts about a hypothetical scenario. He wrote the following:

Person X, a corporate officer, is a member of the Investment Committee for the corporate retirement plan ("Plan"). Person X determines that a specific course of action is in the best interest of the Plan (e.g. remove employer securities as an investment option or replace Bank Y with Bank Z as trustee). However, the Chief Financial Officer ("CFO") of this made-up company inappropriately steers the decision to one that serves the corporate interest and not the Plan interest (e.g. maintain employer securities as an investment option or continue to use Bank Y as trustee because it is providing corporate finance services to the company at below-market prices).What is Person X to do? He or she has a duty to serve the company and its shareholders, yet as an ERISA fiduciary, is there is a duty owed in this instance to the Plan and its participants? Person X complains to the U.S. Department of Labor ("DOL"). Five months later, Person X is terminated from employment by the CFO for "performance issues."

There is an inherent conflict of interest when corporate officers serve in an ERISA fiduciary capacity. The DOL and the U.S. Supreme Court have each determined that one can wear dual hats (sometimes an ERISA fiduciary, other times not an ERISA fiduciary),

In this hypothetical situation, Person X is clearly wearing the ERISA fiduciary hat when engaged in Plan Investment Committee work and owes the corresponding duty at that time to the Plan and its participants and beneficiaries.

The very purpose of the whistleblower statutes (such as ERISA Section 510 or Sarbanes-Oxley Section 1514A) is to root out problems and protect the reporting individual (the "whistleblower") from retaliation in this sort of scenario.The legal mechanism is in place to protect whistleblowers.There are some legal distinctions yet to be fully resolved about whether or not a particular retaliation is unlawful or not. They turn on whether an employee "has given information or has testified or is about to testify in any inquiry or proceeding." In other words, there are some open legal issues about whether unsolicited grievances are protected (as compared to whistle-blowing about ERISA violations during an active or ongoing investigation).

The question as to whether the presence of senior management who serve alongside mid-level or junior-level employees at the ERISA fiduciary table creates a "chilling" effect is a good one. Though the answer ultimately turns on the compliance culture of each company, potential problems can be mitigated well in advance with solid corporate governance and ERISA fiduciary training, as well as having appropriate policies and procedures in place with regard to risk management.

On behalf of the readers of Pension Risk Matters, thank you Attorney Wilkes.Your insights are much appreciated.