PLANADVISER - March/April 2018 - 42

classes and revenue sharing. "
It is important to draw these distinctions and make
sure plan sponsors understand how broad their exposure is,
Senderowitz says.
" It goes far beyond just leaving a poorly performing
mutual fund on a menu for an extra quarter or two, out of
mere oversight, " he says. " Plan sponsors are commonly sued
these days for including retail share classes when cheaper,
retirement-plan-specific shares were available; plan sponsors
are also being sued for a failure to ensure a recordkeeper
or third-party administrator [TPA] is meeting all of
its responsibilities. "
Thus, the exposure is quite broad, and for that reason
there needs to be a holistic approach to managing litigation
risk, Senderowitz believes. The adviser can be the person
who helps to coordinate much of this.
Active in Litigation Prevention
Joe Connell, an adviser/partner with Sikich Retirement
Plan Services in Minneapolis, and the 2014 PLANSPONSOR
Retirement Plan Adviser of the Year, agrees with Senderowitz'
assessment and argues that the role of the adviser
in preventing client litigation can broadly be summed up by
the maxim " an ounce of prevention
beats a pound of cure. "
" Most important against the
backdrop of expanding litigation
is governance of process-really
establishing, over time,
the
retirement plan committee as an
effective body that understands
and embraces all of its diverse
fiduciary responsibilities, " Connell
says. " The adviser can provide
so much support and structure
during this effort before the fact-
before a lawsuit gets filed. "
Connell and Senderowitz
caution that plan sponsor clients
face risk of litigation, and potentially
severe financial penalties,
from at least two fronts-from
participants themselves but also
from regulators, in particular
the Department of Labor (DOL)
and the Internal Revenue Service
(IRS). Creating an effective governance
process to address both
concerns at once is absolutely
necessary, they agree.
" One really important thing
to note, from the experience of
doing four Department of Labor
audits in just the last two years,
is that the DOL doesn't really
care that much about outcomes
considered in isolation from the
structure and goals of the plan, "
Connell says. " Instead, it really
It should be quite clear from all of this that advisers, like their plan
sponsor clients and recordkeeping partners, have much to think about
when it comes to avoiding litigation, and, in fact, there may be no
way to entirely do that. A case in point: One advisory firm frequently
featured in PLANADVISER for promoting best practices, Cammack
LaRhette Advisors, was recently named as defendant in the New York
University 403(b) plan lawsuit. Now known as Cammack Retirement
Group, the practice was named the 2017 PLANSPONSOR Retirement
Plan Adviser Mega Team of the Year.
While Cammack was, in the end, removed as a defendant by a district
court judge presiding over the matter, the case still presents a fascinating
microcosm for ERISA [Employee Retirement Income Security
Act] watchers. Like most ERISA cases, this one has played out in fits and
starts, and it was not until the third amended version of the complaint
was filed that the advisory firm was explicitly accused. Adding to the
drama, before Cammack was dismissed as a defendant, the suit earned
class certification for some 20,000 plaintiffs; so it seemed, for at least
a short time, that Cammack could have been involved in the full trial.
As of the time this article was being written, the wider matter remained
unresolved, pending trial, and while it appeared that the advisory firm
was off the hook, its client still faced suit, and its practices could still
be reviewed in court. Therefore, the case makes it clear that defined
contribution (DC) plan fiduciary breach litigation is far from just a plan
sponsor client concern. Advisers must acknowledge their own risks
of being pulled into litigation and take direct action to protect themselves
and their business partners. -JM
Not Just a Client Concern
cares about process and documentation. In private litigation,
this is also more or less the case, and it is clear that
plan sponsors can be quite successful defending their decisions
in court when they have a strong record to point to, in
order to prove they were deliberate in their decisionmaking
and that they followed a rational process all along the way.
When a client cannot prove this, it cannot really defend
itself in ERISA litigation or in a DOL audit. "
In short, advisers must ensure both rationality of process
and documentation of process, the two agree.
" As the adviser, you may very well be relied upon to be
the one to ensure the client monitors and documents all of
its important decisions closely, so that when the DOL auditors
or private litigators eventually come knocking, as they
will, you can point back and prove that the plan committee
fully discharged its duties in a sober and rational way, "
Senderowitz says.
" And again, it's not just about investment performance, "
he underscores. " If you have revenue sharing in your client
plans, it better be clear to everyone involved how and why
the fees are being allocated the way they are. If you have
revenue sharing, what product is generating it, and who is
generating it? "
42 | planadviser.com march-april 2018
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PLANADVISER - March/April 2018

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