Retirement Plan - Litigation UpdatesSubmitted by BCR Employer Plans on July 12th, 2017
In a day and age when law firms are creating a specialty in suing retirement plans, as the plan’s sponsor and the company providing the benefit(s), it is imperative that you not only maintain a process showing the care you are taking on behalf of your employees but also stay aware of the perceived mistakes landing retirement plans into court. To stay abreast of the landscape, BCR® Employer Plans provides a monthly summary of recent lawsuits filed and the progress of suits that we think you should know about.
Here are two recent lawsuits:
- Defendant: Marathon Petroleum’s Retirement Plan Committee and Investment Committee Members
Plaintiffs: Plan participant seeking class treatment for thousands of participants
Type of Plan: 401(k)
Plan Assets: $2,341,663,426 (as of 12/31/2015)
Participants: 11,761 (as of 12/31/2015)
Suit Summary: Employees allege that the company’s executives wrongly allowed the employees to invest their retirement savings in Marathon’s company stock. The suit claims that this investment violated ERISA’s prudence requirement and was “reckless under any common-sense investment strategy”. Furthermore the lawsuit claims the stock “dramatically” underperformed the market and caused millions of dollars of losses in the plan.
Originally filed in: June 30, 2017
- Defendant: Pioneer Natural Resources
Plaintiffs: Current plan participant seeking class treatment for participants in the retirement plan
Type of Plan: 401(k)
Plan Assets: $500,187,123 (as of 12/31/2015)
Total Participants: 3,653 (as of 12/31/2015)
Suit Summary: Employees allege that the company chose inappropriate, more expensive mutual funds in the plan and also paid Vanguard (the recordkeeper) unreasonable and excessive fees. Employees in the filing state that lower costing options were available and this caused the participants of the plan to pay hundreds of thousands of dollars per year in investment management fees.
Originally filed in: June 28, 2017
BCR Employer Plans thoughts:
A common theme we continue to see in these lawsuits is the lack of proper investment diversification options. Like with the Marathon Petroleum suit, individual stock investment options are not diversified options for participants. Not that it is inappropriate for all companies to offer employer stock, it is very important for participants to understand the risks of investing in such a specific, non-diversified investment. The responsibility of providing proper investment and diversification education lies with the plan sponsor.
Another constant theme in this rise of retirement plan litigation is plan-related fees. In the case involving Pioneer Natural Resources, not only are investment charges in question, but also recordkeeping fees. It is important for investment committees to consistently evaluate the plan’s investment options and alternatives available in the market place. Making sure the decisions to keep particular funds or replace funds in a line-up should be documented, and this documentation has been proven to be valuable evidence in similar cases.
A significant number of plans do not have processes and procedures to show the plan sponsors are doing their due diligence and treat their employees with their required fiduciary obligation. With or without your advisor, plan sponsors need to create thorough procedures, document them and consistently follow them. Good plan management will not only serve your employees best, but could provide a powerful defense if anyone considers questioning your plan.