Disclose 'Sure'

There are few things more annoying in my daily existence than those ubiquitous pop-up service agreement acknowledgements.

I say annoying because they are inevitably long and “lawyerly”; there’s no way that they can readily be read (much less absorbed) in the medium in which they are presented; and the alternative to not accepting the conditions presented would seem to be to forego the update that you’ve been encouraged to accept, and that, at some point in the future would seem to have its own dire consequences. And so, probably like many, if not most, if not all, of you, means that I accept the terms, and acknowledge the disclaimers basically sight unseen (or at least unread).

Last week the U.S. Supreme Court weighed in on a case involving participant disclosures, specifically the issue of whether certain plan disclosures were sufficient to establish a participant’s “actual knowledge” of the design of Intel’s custom target-date series, which had been built including an allocation to hedge funds and other alternative investments, including private equity. The participant-plaintiff here alleged that, despite “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites”—and tracking that indicated that he had actually visited the web sites “repeatedly”[i] during his employment, he did not “remember reviewing” the disclosures.

SOL ‘Stance’

The difference is one of timing, because of ERISA’s statute of limitations. Those injured by an ERISA breach have three-years to file suit from when the plaintiff had actual knowledge of the violation. Without that knowledge, an alternative 6-year statute of limitations applies, running from the date of the last action which constituted a part of the violation. The suit, filed in 2015, challenged actions that occurred between 2009 and 2014.

The Intel defendants argued—and the district court agreed—that the notices established knowledge well beyond the 6-year statute of limitations. However, the appellate court disagreed, explaining that if (as claimed) “Sulyma in fact never looked at the documents Intel provided, he cannot have had ‘actual knowledge of the breach.’”

The nation’s highest court—unanimously—agreed with the appellate court, commenting that while “…relevant information disclosed to the plaintiff is no doubt relevant in judging whether he gained knowledge of that information”… to meet the “actual knowledge” criteria imposed by the legislation, “…the plaintiff must in fact have become aware of that information.”

Now, as someone who appreciates a reliance upon the black letter of the law, the decision’s clarity is somewhat reassuring. If, on the other hand, you’ve spent time and money producing and distributing the plethora of disclosures mandated by the law, you could hardly be faulted for wondering… what’s the point?

Foreclosure ‘Notice’

Doubtless anticipating the clamor of plan fiduciary jaws slamming onto desktops across the nation, Justice Alito (who authored the court’s opinion) threw a (small) bone to what seems likely to be a rapidly expanding class of plan fiduciary litigants.

“Nothing in this opinion,” he cautions, “forecloses any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation. … Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions. On top of that, actual knowledge can be proved through ‘inference from circumstantial evidence.’ … Evidence of disclosure would no doubt be relevant, as would electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them…”. He also noted that, “Today’s opinion also does not preclude defendants from contending that evidence of ‘willful blindness’ supports a finding of ‘actual knowledge.’”

The Impact

There’s little question that the ruling will make it harder for plan fiduciaries to claim that effective notice has been provided by the series of disclosures, mandated and otherwise. Indeed, this particular plaintiff’s ability to basically disclaim awareness despite evidence that he had spent a lot  of time on the site(s) where the disclosures were housed was, to this observer, anyway, a bit of a head scratcher, to say the least.

In response, employers will almost certainly pursue technologies (or be counseled to do so) that provide a more specific acknowledgement by participants that they have seen—and read—specific plan information before proceeding to the information they really want to see (like account balance).

Now if only the lawyers (and regulators) would craft disclosures that, if not more memorable, were at least (more) readable.

- Nevin E. Adams, JD

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[i]In their filing with the Supreme Court, Intel noted that, “during his brief tenure with Intel, respondent regularly accessed the website for those materials,” clicking on more than 1,000 web pages within that site; it was undisputed that respondent “accessed some of th[e] information” that disclosed the disputed investment decisions “on the websites.”

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15 Retirement Plan Points to Ponder

Working with retirement plans is a complicated, challenging, and constantly changing process. That said, there are certain constants — and things that bear repeating and/or reconsidering from time to time.

Here are a few points to ponder from my list of “constants”:

1. The key to successful retirement savings is not how you invest, but how much you save.

 2. The vast majority (more than 90%) of participants defaulted in at a 6% deferral do nothing to change that default. Of those who do, about half actually increase that deferral rate.

 3. Plan fiduciaries are responsible for every participant investment decision in plans that don’t comply with ERISA 404(c). Most plans don’t comply with ERISA 404(c).
 
4. Hiring a co-fiduciary doesn’t make you an ex-fiduciary.
5. “Because it’s the one my record keeper offers” is not a good reason to choose a target-date fund.
 
6. Given a chance to save via a workplace retirement plan, most people do. Without a workplace retirement plan, most people don’t.
7. Isaac Newton’s First Law: An object that is at rest will stay at rest unless an external force acts upon it. Ditto plan participants.
 
8. Nobody (except perhaps the lawyers who wrote them, the regulators that mandate them and, eventually, the plaintiffs’ bar) is actually reading all those participant notices.
9. You want to have an investment policy in place before you need to have an investment policy in place.
 
10. Disclosure isn’t the same thing as clarity.
11. “Stay the course” is only a viable strategy if you’re already on the right course.
 
12. If you can’t remember the last time you did a provider search, you’re probably overdue.
13. A prudent process helps you win in court; a good result keeps you out of court in the first place.
 
14. Despite litigation concerns, most plan sponsors still have a better chance of being struck by a meteor than being sued by a plan participant.
15. It’s not what you’re doing wrong; it’s what you’re not doing that’s wrong.

- Nevin E. Adams, JD

Paper “Trail”

Last week, the Department of Labor reissued its proposed regulation on participant fee disclosure.
Those familiar with the last proposal (put out by the prior Administration—see “EBSA Finishes Regulatory Package with Participant Disclosure Proposal”) will doubtless find this one to be a modest improvement (see “EBSA Releases Final 401(k) Fee Disclosure Rule”). Aside from the passage of time, this version incorporates additional input from the retirement plan community, financial services regulators, and even participant focus groups—most of it good, and all of it interesting.1

The rule itself is worth a read for, IMHO, it offers valuable insights not only into the suggestions made, but into the Labor Department’s reaction and response to those comments. As always, the devil lies in the final details, but one senses a strong interest in balancing the desire to give participants more information to make better decisions with the practical realities attendant in providing transparency and consistency of disclosure in an industry whose fee structure has become increasingly obtuse and intertwined.

That said, and while this is a marked improvement from the current state of affairs, IMHO, this regulation will still leave us a long way from producing what I think will actually show participants what they are paying for these retirement accounts.


Sure, they’ll get more frequent information on their investments, and sure, there will be more (and probably better) comparative information about those investments, both fees and performance. Yes, they will see fees expressed both as a percentage and as a dollar amount per $1,000 invested, and yes, they will get more information on account restrictions, annuity provisions, and revenue-sharing than many have probably ever received previously. And yet, for all this extra data that will be produced, provided, and distributed, I can’t quite shake the image of a participant’s eyes glazing over as they desperately try to make sense of what they have been given.

Of course, it’s possible that many won’t bother reading it at all, though a large part of the financial justification for these regulations is how much time the disclosures’ availability will spare participants searching for information about these investments. In fact, to my eye, perhaps one of the most significant revisions from the prior regulations was a reset in the estimation of just how many participants are expected to benefit from these reams of paper. The prior proposed regulation estimated that 29% of participants in these programs would realize some kind of time-savings, but the Labor Department, responding to a suggestion from a commentator, has upped that—to an eye-popping 70%-76%!2

Now, that determination isn’t, IMHO, essential to the importance of this effort. Personally, the 29% figure is much more in line with my experience, mostly because what I see, time and again, is that the more paper we sling at participants, the less attention they pay. And, make no mistake, with this new proposal, we will be slinging a lot more paper at participants, and more frequently. Despite the effort to alleviate the complexity of basis points and revenue-sharing, it’s hard to shake the sense that this well-intentioned effort will simply overwhelm participants, while at the same time placing a large and growing burden on the backs of those who must provide, administer, and explain it.

It’s clear to me that the information is needed, and as I read the proposal, it’s clear to me that the regulators have made a good-faith effort to strike a balance in providing it.

That said, I doubt very much that it will make much difference in participant behavior, nor am I optimistic that it will actually enlighten many, certainly not the three of four cited in the Labor Department’s projections. This is not a shortcoming of the DoL’s attempt here—frankly, in view of the tangled web that has become 401(k) retirement fee calculations, I think they are to be lauded for their vigorous and balanced efforts.

However, what participants really want and, IMHO, what they need to really understand what is going on here is to have that single figure on the statement—even if produced only once a year—that tells them what their retirement plan costs.

This new regulation may hasten that day’s arrival. But until it comes, I fear we may be doing little more than papering over the real problems.

—Nevin E. Adams, JD

1 There is another interesting inclusion in this proposal—one that has to do with disclosures, but perhaps not participant fee disclosures, per se. With this proposal, which merges the 404(c) disclosure regulations with those of non-404(c) plans, the Labor Department added a provision to the 404(c) regulation, stating plainly what those of us in the industry have long understood; that, even where ERISA 404(c) protection applies, it does not shield fiduciaries from the duty to prudently select and monitor investments. However, this statement was only referenced in the preamble to those regulations rather than in the body—and thus, some courts had seen fit to disregard its implication in a series of revenue-sharing suit dismissals (see “IMHO: Second Opinions"). That, of course, is fodder for another day.

2 The recommendation was based on a finding from the Employee Benefit Research Institute’s (EBRI) 2007 Retirement Confidence Survey, which indicated that 73% (plus or minus 3%) of workers saving for retirement used written materials received at work as a source of information when making retirement savings and investment decisions.

The regulation is online HERE

A fact sheet summary is online HERE

A model of the information chart is online HERE

Income Tacts

I don’t know if you’ve gotten to this point in your year yet, but we’ve started doing taxes in our household.

Now, tax season’s not quite the arduous experience it once was—not since that fateful “encounter” with the AMT a couple of years back, along with a year replete with a variety of “special” events, that finally persuaded me that it was a better use of my time to enlist the services of an expert. Still, there is the process of gathering the requisite information from which that expert can do his thing (aided in no small part by the order in which my better half keeps our financial house), and it provides a good opportunity to get a 30,000 foot perspective on how we spend (and invest) our money.

This year—as in most years—I was astounded at how much of our household income is absorbed by various taxes—federal, state, local/property, and, yes, FICA (which I consider a tax—but that’s a subject for another day). Indeed, while I have an opportunity to see most of these reduce my take-home every pay day, that never has quite the same impact as seeing what it adds up to over a year’s time. After all, it’s one thing to hear people talk about tax rates and tax brackets, credits, deductions, and allowances—or even to see those interim deductions on those payroll stubs. It is another altogether to see, all in one place, how much of one’s household income is “rendered unto Caesar.” This may be a free country, after all, but that doesn’t mean it’s cheap.

For all the angst and drama about fee disclosure, most plan participants are already given a fair amount of information about the costs of their retirement plan accounts. Of course, it’s generally in tiny little numbers in tiny little print—numbers that look like pennies (fractions of pennies, actually) and are expressed not in dollars and cents, but basis points, or bps (1). That doesn’t change the fact that most participants could, if they were so inclined, figure out how much their 401(k) costs. All they would have to do is sit down with their year-end statement and the prospectuses associated with the funds they have invested in, and—setting aside for a second potential “distortions” like interfund transfers (of which there generally aren’t many), the timing of contributions deposited, and the fluctuating value of the fund over the course of the year, and ignoring the impact of things like trading costs within the fund—they could get a respectable, if not completely precise, sense of how much they are paying.

Of course, what they’d also get, if they took the time to do that, is a single figure that would show them what they paid for their 401(k) last year.

Now, like many of those government taxes, those 401(k) fees are a toll that is taken along the way. For years this industry has fretted about the difficulties of producing that single number at a participant level—and, the way those fees are currently structured, that concern is not without merit (2). Some have suggested that producing that figure would produce an unhealthy focus on fees alone, rather than the broader context of a total return; others, that the additional costs of producing that figure would be prohibitive (3), and that participants wouldn’t be able to fully appreciate the array of services they are receiving for those expenditures.

That said, as “easy” as the largely imbedded nature of retirement plan fees makes it to extract them for the investment fund community, it also renders them largely invisible to the investing public.

As a consumer, when it comes to buying things like a car, I may not care (or need to care) how much commission that car salesman gets, how much the manufacturer paid for the tires, or even how much profit the dealership makes. But, at the end of the day, I expect—and have a right to expect—to know how much I am paying for the vehicle I drive off the lot. As a taxpayer, I may not know or fully appreciate just how much of my taxes go to support what services (and I may disagree with some that I do), but, at least once a year, I’ve got an opportunity to know how much I am paying in aggregate (and, generally on a somewhat less frequent basis, I have an opportunity to do something about it).

Unfortunately, as a 401(k) investor, I’m still largely in the dark—and, IMHO, the sooner participants know how much they are paying, the better off we’ll all be.

—Nevin E. Adams, JD

1 In my experience, most “regular” people don’t know what a basis point is (many don’t quite seem to understand what a mutual fund is), and many don’t read the prospectus where such things are explained.

2 One might cynically suggest that perhaps a methodology that would be easier to communicate might be more appropriate.

3 Frankly, IMHO, some of the proposals that have been made to present this information to participants would kill a lot of trees AND shed little in the way of clarity.

Projection Screen

More than the subtleties of the law, the nuances of crafting a cogent legal brief, and the humiliations that often accompany the public exercise of the Socratic method, surely the most intimidating aspect of my law school experience—certainly in the first year—was the grading. In the vast majority of my classes, there were no papers, no mid-term, no pop quizzes; in fact, no tangible means of measuring progress vis-à-vis the expectations of the course. Indeed, in the vast majority of courses, it came down to a single final exam (and an essay exam at that).

Now, there were regular (and, as I recall, fairly prodigious) reading assignments—and there was the omnipresent “fear” of being called on to explain the legal intricacies of a particular case—but, for the very most part, lacking any specific interim evaluations, there were weeks when the press of external events intruded. It was, for some of my classmates, particularly in that critical first year, easy to postpone their preparation until a later day.

Procrastination, of course, is an all-too-common failing of human beings, particularly when it comes to complex financial matters. Indeed, IMHO, too many retirement savers (and certainly most retirement nonsavers) save based on what they think they can afford or on what their employer matches, rather than on the income that savings will generate when they are no longer drawing a paycheck.

While there are any number of innovative calculators and communication devices available at present, they still seem to work best for participants who are willing to take the time to use them. But late last year, lawmakers (specifically, Senators Jeff Bingaman (D-New Mexico), Johnny Isakson (R-Georgia), and Herb Kohl (D-Wisconsin)) introduced legislation that would require defined contribution plan sponsors to inform plan participants of the projected monthly income they could expect at retirement, based on their current account balance (see Bill Would Require Disclosure of Participants' Expected Retirement Income).

Now, as a general rule, I’m leery about government-mandated disclosures, which tend to cost more and inform less than their erstwhile sponsors surely intend (“of the lawyers, by the lawyers, for the lawyers” is how they usually seem to turn out, IMHO). But this could well be an exception.

The sponsors of the Lifetime Income Disclosure Act have directed the Department of Labor to issue tables that employers may use in calculating an annuity equivalent, as well as a model disclosure—and they have provided that employers and service providers who rely on those materials would be insulated from liability arising from those disclosures.

There will, of course, be some issues. The legislation outlines assumptions that include payment as a joint and survivor annuity, and that each participant has a spouse of their same age—assumptions that certainly won’t apply in every case. It may well be that the model disclosure—though the legislation directs that it be able to be “understood by the average plan participant”—will wind up being an unintelligible morass of caveats and conditions (yes, “of the lawyers, by the lawyers, for the lawyers”). It is possible that the costs of preparing and producing that communication will countermand their benefit. It is even conceivable that seeing that particular number in black and white will only serve to undermine, not inspire, a greater appreciation for these programs (projections in a similar vein years ago didn’t do much to inspire an appreciation for my pension benefits).

That said, decades of saving for retirement is for naught if it fails to provide income for retirement, and the challenge of getting to retirement on a limited budget surely pales in comparison to the challenges of trying to get through retirement with those strictures. Knowing how much your current savings level might actually produce in retirement income dollars may only be part of that equation, but, IMHO, it’s a critically important component. Like any meaningful long-term savings goal—a house, a car, a college education—you need to know the target if you are to have a chance of hitting it. And seeing a clear, consistent estimate of what your current savings will amount to post-retirement seems to be a positive step in that direction.

To paraphrase Yogi Berra, if you don't know where you are going, you might wind up someplace else. And for tomorrow’s retirees, that could be a failing grade.

—Nevin E. Adams, JD

More information on the Lifetime Income Disclosure Act is available at http://www.plansponsor.com/Bill_Would_Require_Disclosure_of_Participants_Expected_Retirement_Income.aspx

http://bingaman.senate.gov/policy/erisa.pdf

Utility "Bills"

While it’s been a relatively mild winter here (and it’s not over yet), it’s been cold enough—and our house old enough—that opening the various utility bills has been akin to a monthly exercise in economic roulette. Not that we don’t know what the rates are (though that doesn’t mean they’re reasonable, IMHO), and not that, with some effort, we couldn’t find the appropriate meters and, at least in theory, undertake the calculations that would allow us to know what we have to pay before that envelope arrives. Still, those fees (more accurately, fee rates) are disclosed, and in theory, I am able to monitor them.

The reality, of course, is something different. The placements that make it convenient for the entities that deliver fuel and power to my home make it somewhat less than convenient for me to get to them on a regular basis (particularly during the winter months). Not that it would matter in any event—when it comes to utility preferences, my choices as a homeowner are relatively limited. My only viable recourse—and one that I entertain at least briefly following the receipt of each month’s bill—is simply to consume less of what I am being charged for. Sweaters for everyone!

Retirement savings plan participants are not dissimilarly positioned, IMHO. In theory most—despite the angst of lawmakers—are already in possession of information that would allow them to figure out what they are paying for their retirement accounts, although not always in a place, or explained in a manner, that makes the task easy (1). Additionally, when it comes to retirement savings plans, most of us are “stuck” with the plan chosen by our employer.

It’s not quite a utility monopoly, of course—I don’t have to save for retirement, and I certainly am not limited to doing so within the confines of a workplace retirement plan (of course, I don’t have to heat my house, either, but you take my point). It is, of course, the only practical way to avail myself of the “free money” of the company match (if available), and for most, it’s a significantly more convenient option than setting up a payroll deduction for a savings account (particularly for those lacking the discipline to deposit money regularly). For most, then, if there is an issue with what they are being charged for those services (and many don’t have an issue because they don’t know how much they are paying), the only viable recourse is, like with my home utilities, to consume less of what they are being charged for.

Tell “Tail”

That, of course, is the concern expressed by those defending the status quo on participant fee disclosure; that if we tell people how much they are paying, they will stop participating in these programs. That would be an unfortunate and, I think, unintended consequence, since by most measures, most folks already aren’t saving “enough.”

As a consumer, I’m not happy about the high cost of my utility bills. There are limits to how many layers one can put on, or how low you can set the thermostat at night and still be able to sleep. But seeing that cost every month does at least provide the opportunity to consider alternatives, including a greater involvement with the powers that oversee such matters. Similarly, seeing the cost of my retirement plan spelled out as a number separate and apart from the investment returns in which it is currently imbedded isn’t a panacea. Some may well decide that they don’t want to pay that much, or use that cost as a rationalization for not saving at all.

But it also might provide a reason for participants (and plan sponsors) to consider some more-cost-effective alternatives (such as index funds or lower-expense share classes), it might engender a more proactive dialogue about curtailing some of these unnecessary “bells and whistles” that add cost but little value to these programs—and it might even foster greater participant attention to these critical savings vehicles. But even if it doesn’t—and even if the disclosure costs participation in the short-term—no one is well-served by a system that people think is “free.”

We don’t know how participants will react if those disclosures were more explicit(2). But every time I hear someone caution against doing so, one of two thoughts comes to mind: first, that they haven’t got a clue how little attention participants actually pay to these accounts and the accompanying disclosures; and second, that “they” have something to hide.

- Nevin E. Adams, JD


(1)Ironically, most of the regulatory focus to date has been on the types of accounts where prospectus disclosures are available, but almost none on the part of the industry reliant on annuity investments, where, by most accounts, fees are higher and disclosures nearly non-existent – but that’s a topic for another column.

(2)Anecdotally, there are a growing number of programs out there that offer that level of fee disclosure – and I have never heard that it has actually created an issue with participation rate declines of any real consequence.

All For One

Looks like James LaRue will get his day in court, after all.

Last week’s Supreme Court result (see Justices OK Individual ERISA Suits in Landmark Ruling) could perhaps have been anticipated – certainly there has been little of late to suggest an interest in depriving participants of their right to sue - but the margin of victory – 9-0 – was striking.

The case - LaRue v. DeWolff – involved a participant that claimed he had instructed his plan administrator to transfer his balances to different funds. Those instructions were either ignored, or never presented in the first place, depending on who you choose to believe – but the lack of attention to those instructions allegedly cost James LaRue $150,000. What really happened, why LaRue chose to sue when he chose to sue, and how much damage was done as a result has yet to be established – the case was dismissed by two lower courts that, relying on an earlier Supreme Court precedents, determined that ERISA did not permit individual participants to bring suit on behalf of their own interests, only on behalf of the plan as a whole.

I can’t say, however, that I was impressed with the rationale presented by Justice Stevens, who authored the court’s decision (he was joined by Justices Souter, Ginsburg, Breyer, and Alito, while Chief Justice Roberts and Justice Kennedy filed an opinion concurring in part and concurring in the judgment, and Justice Thomas filed an opinion concurring only in the judgment, which Justice Scalia joined). Essentially, Justice Stevens admitted that the Supreme Court had previously held in Massachusetts Mutual Life Ins. Co. v. Russell, that ERISA didn’t permit individual participant suits (1) - but that while “Russell’s emphasis on protecting the “entire plan” from fiduciary misconduct reflects the former landscape of employee benefit plans. That landscape has changed.”

Change “Parse”?

How has it changed? Well, to put it simply, because defined contribution plans have individual accounts, and – here I’ll let Justice Stevens speak for himself – “Russell’s emphasis on protecting the “entire plan” reflects the fact that the disability plan in Russell, as well as the typical pension plan at that time, promised participants a fixed benefit. Misconduct by such a plan’s administrators will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan…. Thus, Russell’s “entire plan” references, which accurately reflect §409’s operation in the defined benefit context, are beside the point in the defined contribution context.”

Of course, defined contribution plans were not “beside the point” when the Russell case was decided, and the justices then ((in an interesting touch, Stevens also authored that opinion) addressed what ERISA allowed, not what it provided for suits brought in a non-individual account context under ERISA. Consequently, to my eye, anyway, it’s as though the Supreme Court sought to “excuse” its prior decision as not being applicable to ALL plans covered by ERISA (you’d think that could’ve been mentioned at the time), or worse – to suggest that because the “landscape” has changed, so has the law.

I suppose some will appreciate the “vitality” such flexible interpretations give the law, but it’s precisely those kind of situational determinations that unduly complicate our lives, IMHO. Defined contribution plans (and those individual accounts) have been with us more than a century, ERISA for a generation. What about the prevalence of defined contribution plans relative to defined benefit programs warrants a reinterpretation of the latter to adequately address the former – other than perhaps the fact that the justices themselves didn’t “get” individual accounts in 1985 when the Russell case was decided? Or, more cynically, that the justices messed up in their Russell decision, and wanted to rationalize what could plausibly be viewed as a repudiation of the previous decision?

A Loss is a Loss

That’s why I much prefer the rationale expressed by Justice Thomas in his concurrence – a concurrence that “is not contingent on trends in the pension plan market. Nor does it depend on the ostensible “concerns” of ERISA’s drafters.” Thomas goes on to affirm the statutory right of a participant, beneficiary, or fiduciary to bring suit (“obtain relief”), and then goes on to state what common sense dictates – losses to individual accounts in a plan are losses of the plan – and recoverable as such (2).

Whatever the rationale, the law of the land now affirms that participants can bring suits based on injuries to their individual accounts. Frankly, the court’s previous sense that an injury to a participant in a plan was not a plan injury smacked of the kind of legal hair-splitting that only lawyers (and I have a JD) and politicians relish. Now, in the wake of the LaRue decision, I can understand and appreciate the concerns expressed on behalf of employers – that this case will simply set off a wave of new and expensive litigation.

No doubt the coverage of the LaRue case will serve to discourage some who were contemplating offering a 401(k), but I doubt that it will lead to the demise of plans already in existence. Much as I hate to contemplate the prospect of more red meat for the plaintiffs’ bar, I suspect the individual participant lawsuit “shield” pierced by the LaRue decision was unappreciated by most plan sponsors. Perhaps most obviously, why else would so many have sought the protections of ERISA’s 404c, but to avoid the possibility of an individual participant suit?

Still, one need look no further than the rash of so-called stock drop cases or the revenue-sharing challenges to see the potential – and the LaRue headlines certainly convey the sense of a new way for workers to sue their employers. But I think plan sponsors – certainly the ones attentive to their fiduciary responsibilities - have long been concerned about participant lawsuits.

Of course, they’re also probably not the ones who should be worried.

- Nevin E. Adams, JD


(1) ERISA Section 409(a) provides: “Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made throughuse of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 411 of this Act.” 88 Stat. 886, 29 U. S. C. §1109(a).

(2) “The allocation of a plan’s assets to individual accounts for bookkeeping purposes does not change the fact that all the assets in the plan remain plan assets.”

The Not-So-Fine Print

If you watch commercial TV (that is to say, TV with commercials), you’ve no doubt been struck by the proliferation of ads for various prescription medicines. Medicines that you generally can’t buy directly, of course - but you CAN “…ask your doctor or pharmacist about how they might work for you.”

Setting aside my personal disgust at just how many (and how explicit) Via.gra ads are shown (and shown so early in the evening), I’m always struck by the length and content of the disclosures that accompany such promotions. Frankly, IMHO, by the time they’re done reeling off the potential side effects, it’s a wonder anyone actually makes an inquiry about taking them. Truly, the “cure” often sounds worse than the disease.

Disclaimers are also increasingly popular in our industry. There’s the disclaimer that plan fiduciaries are asked to sign if they choose not to follow the counsel of their financial adviser, disclaimers that purport to limit the liability of providers, and exactly why do you suppose those admonitions that past performance isn’t indicative of future results come so intriguingly positioned vis-à-vis the trumpeting of those results? Just ahead of the press toward automatic enrollment, some were requiring that participants physically opt out by acknowledging that they realized the consequences of their decision. Not that they necessarily did, mind you. One would expect that if they did, they wouldn’t opt out, if for no other reason to get the “free money” associated with the company match.

No, like the litany of disclaimers on those pharmaceutical ads, the consequences of not saving for retirement are, for many, simply a reminder that some highly unlikely side effects could, but probably won’t, happen. Part of that, of course, lies in the inability to portray something so uniquely individualistic, and part of it, surely because the audience itself has no real idea what a secure retirement looks like, much less what it will be like to live through the alternative. But part of it also is our collective unwillingness to share that truth, or to do so only in the smaller sized text, the fine print of “disclaimers”.

I’m sure the pharmaceutical companies would just as soon not bother with their little disclaimers – ditto those consent forms that accompany the most modest medical procedure. Let’s face it, if any of us EVER thought those “possible” results were likely (including the folks shoving the forms in our face), we’d surely walk away.

Disclaimers, of course, are generally defensive mechanisms; written by lawyers, for lawyers – by the people who have spent time figuring out how all the things that can possibly go wrong to protect themselves against the impact on those who haven’t – or can’t. The drug company tells you that dire consequences are a possibility precisely because they don’t want you to later claim (in a court of law) that you weren’t told they were. They are NOT, however, generally designed to so fully and completely apprise you of the negatives that you hesitate. The “fine print”, in other words, is not designed in such a way as to gain your full attention.

Are your disclaimers any different? Are they truly designed to get people’s attention…or are they simply designed to cover your….assets?

- Nevin E. Adams, JD