PLANADVISER - January/February 2021 - 23

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To the extent that sponsors start to outsource
decisionmaking to a 3(38) adviser, there's really
no reason why those folks would not be targeted
in litigation just as the sponsors have been.
-ALISON DOUGLASS
PA: As 3(38) services grow, do you expect that advisers will
be more likely to be included in lawsuits?
Douglass: Some of the cases involving advisers in the past
10 years concerned advisers who provided 3(21) fiduciary
advice but who were not the ultimate decisionmakers with
respect to plan investments. To the extent that sponsors
start to outsource decisionmaking to a 3(38) adviser, there's
really no reason why those folks would not be targeted in
litigation just as the sponsors have been. I do think, as we
see plans moving to outsourced fiduciary decisionmaking,
we can expect to see more such litigation.
PA: What sorts of complaints or liabilities could arise as the
multiple employer plan [MEP] and pooled employer plan
[PEP] markets develop?
Douglass: There has been a concern in the industry
that MEPs and newly available PEPs will become
the target of litigation if for no other reason
than there are some very large, multi-billiondollar
plans. That alone can attract the interest
of the plaintiffs' bar, and that concern has been
confirmed in the past couple of years. We're seeing
a handful of cases involving multiple employer plans.
Just in the last year, two cases were filed by Schlichter
Bogard & Denton LLP, the firm in St. Louis that
pioneered much of the 401(k) fee litigation. That
firm has filed litigation against Pentegra and ADP
concerning multiple employer plans, and I see no
reason why that trend will abate given the assets that
are at stake.
The nature of the allegations tends not to be terribly
dissimilar to the suits we've been seeing concerning single
employer plans. The complaints allege excessive fees with
respect to plan administration or plan investments. Those
are garden-variety allegations, so it remains to be seen
how the unique features of MEPs may affect the litigation.
PA: For advisers, does the possibility of self-dealing allegations
increase when working with such plans?
Douglass: I don't think there will be any particularly unique
issues for advisers in multiple employer plan cases. Many
of the same concerns will be there in terms of what is the
nature of the advice being provided, what is the fiduciary
role? And there will always be scrutiny on whether there
are any conflicts of interest at play in respect to the advice
and whether the advice is in participants' best interests.
PA: Although settlements have no legal status, are there
lessons advisers can take from settlements and decisions
into their clients' negotiations with recordkeepers and other
providers? For example, is there a preferred type or recordkeeping
fee structure?
Douglass: I'm always hesitant to advise folks to take away
any lessons from settlements terms . There are lots of
reasons that sponsors decide to settle a case, or decide to
agree to certain restrictions in settlement agreements, and
they are often unrelated to what the law requires.
I don't like to look to settlements for lessons as to where
the market is going with respect to recordkeeping fees.
The lesson that has come out of the litigation is there are
a number of different ways to pay for recordkeeping and
plan administration, and even the use of asset-based fees
remains common and can be an efficient way to
fund plan administration.
While some sponsors have agreed to settlement
terms that restrict their ability to use
asset-based fees to pay for recordkeeping, I don't
think there is any particular fee structure that's
preferred. The practice of paying for recordkeeping
through asset-based fees is common and efficient.
Historically, there was some concern about transparency
and whether sponsors understood their fee
arrangements, but the fee disclosure rules in place
for many years now have addressed that issue, and
providers have developed good tools to help sponsors
understand their fee arrangements. So when it
comes to fees, what's important is getting the disclosures
and asking questions if you don't understand. In my
experience, providers are looking to make their arrangements
transparent to sponsors and sponsors are doing
their diligence.
PA: Should advisers seek to limit data sharing and inquiry
about cybersecurity policies? Is there a preferred type, or
recordkeeping fee structure?
Douglass: You also asked about limitations on data
sharing. There have been some settlement provisions that
have sought to restrict plan service providers from using
participant information to communicate with participants,
but these are just voluntary concessions by a handful of
sponsors. There's no legal basis to impose that kind of
restriction, and courts to date have not done so outside the
settlement context.
planadviser.com January-February 2021 | 23
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PLANADVISER - January/February 2021

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