Forth "Right"

A couple of weeks ago, we got a panicked call from daughter No. 1, who had, on her way home from work, gotten her first flat tire. Now, flat tires are never fun, but she was clearly unnerved. It was after dark, at the end of a full day of work for her, and even though she was less than two miles from home, and we have motor club coverage, her mother and I piled into a car to change the tire.

Whilst I was attending to the changing of the tire, my wife turned her attention to gaining a better understanding of the events that had led up to the event. I thought that was odd at the time—after all, tires run over objects and go flat all the time. But gradually, and painfully, my wife—who has a mother’s knack for discerning when the kids are being less than forthcoming—wrested the truth. It turns out that daughter No. 1, in her 10-minute drive home, had been adjusting the car radio—took her eyes off the road—and struck a curb at just the right angle. Sure, the tire going flat had been upsetting, but the real problem for her that night was that her actions created the situation. And the real problem for her after that disclosure—as she soon found out—was that she hadn’t been straight with us in the first place.

Now, it could have been so much worse—a pedestrian could have been involved, or another car. Frankly, we retraced her steps later, and it was something of a miracle that she didn’t hit a fire hydrant or tree. Still, as one might expect, we took full advantage of the “opportunity” to explain to her the potential consequences of her actions—and fuller advantage of the opportunity to deal with the real consequences of her reluctance to be immediately “forthcoming” with her parents (not to mention making her dad change a tire in the dark in the middle of the street in the middle of winter).

Less Than Forthcoming

“Less than forthcoming” seems to be at the heart of this recent wave of revenue-sharing lawsuits—those filed by that St. Louis law firm on behalf of plan participants, challenges by the New York Attorney General, and more recently, pushbacks and lawsuits from plan sponsors themselves. Granted, the language in the lawsuits is generally more provocative than that. A lawsuit filed just this past week against ING says that "Those amounts bear no relationship whatsoever to the cost of providing the services or a reasonable fair market value for the services”—language echoed in a separate plan sponsor suit against Principal that claimed that the revenue-sharing practices "bear no relationship to Principal's costs of providing services to plans or participants," and that the firm effectively used “plan assets to generate revenue-sharing kickbacks for Principal's own interest and for its own account."

Now, it’s not at all certain that any of these actions will go to court, much less trial—and one surely can’t assume that the allegations made by plaintiff’s counsel represent a comprehensive, balanced recitation of fact. There are a lot of disparate issues under scrutiny here, even if they do all have a common linkage in the issue of fees. We can’t know now how all this will work itself out. Perhaps some of these arrangements truly are illegal; some may well be violative of the letter or spirit of trust essential to such programs. Some, no doubt, represent nothing more than an opportunistic plaintiff’s bar.

What surprises us most, IMHO, is not that these lawsuits have emerged, but that it has taken so long for some of these “less than forthcoming” practices to draw this level of attention. However, providers and advisers who have, up till now, been “less than forthcoming” would be well-advised to reconsider that approach.

- Nevin E. Adams

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See also Paying the Price

Plan Sponsor Sues Principal over 401(k) Fund Revenue Sharing

AIG VALIC Relents on Revenue Sharing Disclosure

FL Pension Plan Accuses ING of Revenue Sharing Fraud
FL Sheriff Sues Nationwide Over Fees
St. Louis Law Firm Files Another 401(k) Fee Suit