Plan sponsors need strategies to prevent fiduciary lawsuits, investigations

A slew of recent class-action lawsuits on the part of retirement plan participants have made plan sponsors and benefits managers fearful of some serious financial implications for fiduciary breaches – well-founded fears that need to be immediately addressed, according to attorney Alex M. Brucker.

Brucker, founder of the Los Angeles-based law firm Brucker & Morra, APC, advises plan sponsors to take proactive steps to help protect themselves from what he says he sees as a potentially dangerous trend of suits organized by class-action lawyers.

Speaking at October’s 2014 ASPPA Annual Conference in Washington, D.C., Brucker also had choice advice for the legal professionals who’ve helped employers deal with the ominous and sometimes capricious investigations mounted by the Department of Labor.

Brucker says his primary advice is that plan sponsors seriously consider special liability and fiduciary insurance to help protect themselves from the ramifications of suits such as Tibble v. Edison International – a case now headed to the Supreme Court, which stakes statute of limitations rules against claims that an employer chose retail shares versus institutional shares in a billion-dollar employee retirement fund.

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“Why are class action suits like this happening now? Because that’s where those lawyers’ money is now, and only slip-and-fall lawyers are taking these cases,” Brucker says. “There are practically no ERISA lawsuits against small employers. Doesn’t that say enough? And would your client even pay for this kind of advice at the small employer level?”

Brucker says he believes he sees a similar pattern in the Supreme Court’s rulings on the Fifth Third Bank v. Dudenhoeffer case, which prescribed fiduciaries of ESOP plans with the same level of responsibility as traditional ERISA fiduciaries. His advice: It’s also critical to get professional oversight for the management of retirement plans of any size, if only as a measure of protection for employers.

“You’re crazy if you don’t have a paid investment adviser, because someone at the IRS or Labor is going to come after you,” he warns. Brucker says plan sponsors should also develop a professional relationship with an ERISA attorney as the procedures the Departments of Labor and Treasury each use to get information on potential fiduciary breaches are critically different.

“The DOL will require ‘the interview’ with your client, and that’s a fascinating experience, as the IRS doesn’t, nor would you allow that,” he says. “Labor comes in very softly and sweetly and says it’s a voluntary process, but if you think voluntary is voluntary, I dare you to say ‘no’ and wait to get a subpoena. Then, remember that everything [your client] say can and will be used against them.”

Paying careful attention to potential retirement plan pitfalls – and preparing for the worst if an ERISA-related agency opts to investigate one of the many claims based on breach of fiduciary responsibility – could be the best retirement-related planning a company can do, Brucker adds.