PLANADVISER - November/December 2018 - 2

editor's letter
No 'Yes' Men (or Women)
I
've just finished the second of two weeks on the road,
traveling to five cities for our annual Best of the PLANSPONSOR
National Conference (PSNC) roadshow event,
speaking to, and with, plan sponsors and advisers. As
always, a hot topic is litigation, and sessions touched on
several cases and their implications.
One of the most emphasized was the suit brought against
New York University (NYU) by Jerry Schlicter on behalf of
school employees, because it has lessons for both plan sponsors
and plan advisers.
As Judge Katherine B. Forrest, for the Southern District of
New York, observed in her opinion, this was the first case to
go to trial " of at least 11 groups of plaintiffs-all represented
by the same counsel-asserting ERISA [Employee Retirement
Income Security Act] claims against their university
employers. " The bench trial-i.e., with a judge, no jury-was
held in late spring and the decision released in July. Twenty
witnesses testified, including, of note for this column, plan
committee members and the plans' adviser from Cammack
Retirement Group.
The plaintiffs claimed that the plan committee failed to
fulfill certain of its fiduciary obligations under ERISA, causing
losses to the plan of more than $358 million. (For more about
the allegations, visit planadviser.com.) While the plans'
adviser was named in an amended complaint, the judge
dismissed that complaint relatively early in the process.
In her decision, Forrest wrote, " plaintiffs have not proven
that the committee acted imprudently or that the plans
suffered losses as a result. "
This column could stop here and simply accept the good
the plan sponsor prevailed. However, having
news that
discussed this case at length for weeks, I think that would
be missing the moral of the story.
Let's start with the beginning of the quote I excerpted
from, above: " While there were deficiencies in the committee's
processes-including that several members displayed
a concerning lack of knowledge relevant to the committee's
mandate-plaintiffs have not proven ... " The judge consistently
used words such as " concerning " and " troubling "
regarding committee members and their testimony. One did
" not demonstrate the depth of knowledge [to be] expect[ed]
from a fiduciary, " and another seemed to lack " a satisfactory
understanding of key documents and her role ... "
Yet, there was a silver lining, what probably saved the
school from a guilty verdict: Cammack and Tina Surh, who
was NYU's chief investment officer (CIO) and a committee
member from 2010 through 2014. " Surh appeared to be very
knowledgeable [about] investing generally, " the opinion says
and states that she read materials and met with portfolio
managers at TIAA, as well as Cammack team members,
to discuss market trends, investment options, and NYU's
investment policy statement (IPS). Surh also testified that
she " questioned [Cammack] and discussed ... the basis for
" ... kicking
the tires "
of the
fiduciary's
work is
required.
their views " on the plans' investment
options.
The adviser, who has served
the committee since 2009 in
that role, and as a co-fiduciary,
" displayed deep knowledge and
understanding of the NYU plans
as well as the offerings and capabilities
of vendors such as TIAA
and Vanguard, " Forrest wrote.
The adviser was a retirement plan
specialist, able to use his and
Cammack's industry perspective
and resources to provide advice to the plan committee.
So, despite the court's issues with how some members
treated their fiduciary duties, " it does not find this rose to
a level of failure to fulfill fiduciary obligations. Between
Cammack's advice and the guidance of the more wellequipped
committee members (such as Surh), the court
is persuaded that the committee performed its role
adequately, " she wrote.
This could have easily gone the other way, though, attorneys
noted at Best of PSNC, reminding attendees of the
importance of fiduciary training for committee members.
Another takeaway was the judge's disagreement with a
point made in committee member testimony-that " they
could defer virtually entirely to Cammack for expertise and
information and rely on its recommendations. "
" No fiduciary may passively rely on information provided
by a co-fiduciary, " she wrote. " Cammack's appointment ...
never has entitled the committee ... to unthinkingly defer
to Cammack's expertise-even when [that dwarfed the
committee's]. " To fulfill its duties, the committee needed
to vet Cammack's advice and make informed but independent
decisions.
" Blind reliance is inappropriate, " Forrest said, and
" kicking the tires " of the fiduciary's work is required.
As advisers, you of course want clients to trust you and
value your skill set. But they can't put blind faith in you.
Helping them engage more with plan decisions-and noting
that in the minutes-will benefit all. While this case dealt
with a 3(21) co-fiduciary, one might guess the judge likely
would also expect some engagement from fiduciaries using
3(38) services, at least to monitor that provider's skills.
When I started working at PLANSPONSOR magazine 15
years ago, I often heard people say best practices trickled
down from large plans to small plans and the billion-dollar
plans were run by experts. I think we all know that isn't
always true. This case reinforces that, even at the largest
plans, many at the plan sponsor level may not be experts
but still have fiduciary responsibilities. For 2019, maybe
it's a good idea to put fiduciary training on the committee
calendar. -Alison Cooke Mintzer
2 | planadviser.com November-December 2018
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PLANADVISER - November/December 2018

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