Though Zig Ziglar has been long gone from this planet, I still chuckle when I see a quote of his. In this case, "It is easier to explain price once than apologize for quality forever". The Department of Labor has echoed this in the 401k world, noting that a plan does not have to the cheapest or lowest fee investments. A defendable and repeatable process is what is needed.
A further example came my way from the record keeping world. I competed in an RFP against four other 401k advisors. I must have done something right as that relationship is now going on ten years. Having said that, the 401k is a low-fee record keeping platform and that platform has given me conniption fits over the years to the point that I am actively looking to move the plan to a new platform.
And that brings me to today. In Ohnemus v. Telephone & Data Systems, Inc., the plaintiffs alleged ERISA fiduciary breaches due to excessive plan fees. The U.S. District Court dismissed the case, citing a lack of specific allegations about fiduciary misconduct and inadequate comparator benchmarks.
The plaintiffs appealed, prompting an amicus brief from the U.S. Chamber of Commerce and retirement industry groups. The brief criticizes a growing trend of ERISA class actions that focus narrowly on fees without context, use flawed comparisons, and overlook fiduciaries' discretion and decision-making processes.
Key points from the US Chamber of Commerce brief:
- Many lawsuits cherry-pick data and ignore plan service quality. My thoughts? This is key. "You pay for what you get" is an old American adage. Low price does not automatically mean quality. ERISA does not require lowest fees, a single prudent choice, or periodic RFPs. My thoughts> Follow the Prudent Person. Obey the Duty of Loyalty. Have a defendable and repeatable process by which you choose your investments.
- Courts must assess the reasonableness of fiduciary judgment, not hindsight. My thoughts? I am a great Monday morning quarterback but truth be told, I have never played a single down in a professional football game. Take the facts that you have and make the best decision you can. Document how the decision was arrived at.
- The litigation trend deters plan sponsorship, burdens fiduciaries, and destabilizes fiduciary insurance markets. My thoughts? I agree. I am not a fan of frivolous lawsuits. Shakedowns benefit no one and in fact, hurt more than they may help.
- Alleging imprudence without evidence of process is insufficient under ERISA. My thoughts? Cases can be dismissed with prejudice which is the best (?) the defendants might hope for. I wonder if attorney fees and other related costs could be required to be paid by the filer of the frivolous lawsuit.
The Parting Glass
In spite of the US Chamber of Commerce's amicus brief, these types of lawsuits will continue. Fiduciary breach lawsuits are warranted if they are backed up by evidence. What is a head scratcher to my non-attorney brain is when the lawsuit reads as a boilerplate copy of several other lawsuits. How does this advance the 401k industry and the goal of retiring with dignity?