Dear Mr. or Ms. 401k Fiduciary,
Think you can’t get sued because your plan is too small? Think again!
I never thought I’d say “thank goodness for lawyers”. Today I’m saying “thank goodness for lawyers!”
401k rules and regs
The world of defined contribution plans faces a lot of crazy rules and regulations. ERISA was put into plan some 40 years or so ago. It may be a bit outdated but the purpose remains the same – provide as much support and financial benefit as possible for 401k plan participants and their beneficiaries. Some of the rules are just plain crazy, most of them however are really for the good of the participants and ultimately their beneficiaries.
Unfortunately, sometimes it takes a lawsuit to make people stand up and take notice of these rules and regulations. Last week we had one such “landmark” type of a day when the first real small 401k plan was sued.
LaMettry’s Collision in Minnesota – a 9 million dollar 401k plan with a bit over 100 participants – was sued for excessive fees and breach of fiduciary duty. Seems someone was asleep at the wheel! Granted this is a relatively small 401k lawsuit, but the DOL is – and has been – cracking down HARD on outrageous retirement plan fees after all. Haven’t you seen the new DOL fiduciary rule? Guess what… it’s NOT going away!
If you’re a fiduciary, ACT LIKE IT!
President Obama addressed the nation last year and said there’s an estimated 17 BILLION dollars in wasted investment fees from retirement plans. Most of this comes form apathetic 401k plan advisors who care more about lining their pockets than plan participants actually retiring financially healthy. The other part comes from financial advisors who roll participant plans into IRA’s and do unscrupulous things with those monies (think slamming them into variable annuities they have no business being in).
Regardless, this small 401k lawsuit is just the tip of the iceberg! The new DOL fiduciary rule just brings to light what the original intentions of ERISA were then, and are today. It puts a focus on fiduciary duty, and gives the lawyers something to scrutinize.
Wow – it scored a 65 in BrightScope?
If you think your plan is safe because you have a decent rating, think again! The LaMettrys score is a 65 in Brightscope. As you can see it’s about average for the peer group. That doesn’t matter, why settle for average when you can be brilliant after all?
Their fees (BrightScope report) were higher than they should have been. The plan fiduciaries (which included CFO Stephen Daniel and President Joan Lamettry) clearly weren’t following a prudent due diligence process to make sure they were acting in the best interests of the participants and their beneficiaries.
The moral of the story
If you’re a plan fiduciary you need to have in place prudent standards for analyzing and evaluating all of your service providers. This doesn’t mean that the cheapest providers are always the best, this means that the value you and your plan participants are receiving is commensurate with the fees charged to the plan. This goes for record keeping, TPA work, custodial fees, and ESPECIALLY 401k plan advisor fees.
Don’t settle for less, put a process in place that will treat every employee like you would want your relatives treated (assuming you like your relatives)! You can start today by having us run a thorough due diligence report on your 401k plan. Stick that report in your fiduciary file and whether we work together or not you’ll go a long ways towards avoiding the next small 401k plan lawsuit!