In providing capital preservation options for investment menus, some defined contribution plan executives have wound up in the crosshairs of participants' lawsuits alleging fiduciary breaches of the Employee Retirement Income Security Act.
Some sponsors have been sued because they offered a money market fund instead of a higher-return stable value fund. Sponsors and providers have been sued for offering a stable value fund whose fees were too high. Or because the funds were too conservative. Or because the funds were too aggressive.
"They can get sued no matter what choice they make," said Patrick DiCarlo, Atlanta-based counsel for the law firm Alston & Bird LLP, which represents sponsors in ERISA cases. "The variations in plaintiffs' complaints are more so than I have ever seen before."
Despite some settlements — such as the preliminary agreement this month by Philips North America LLC to pay $17 million — many defendants have prevailed as federal district court judges and appeals court judges have rejected plaintiffs' arguments.
For example, judges have rebuffed complaints that the CVS Health Corp. stable value fund was too conservative and that Chevron Corp. should have offered a stable value fund instead of a money market fund.
Still, trade groups, ERISA attorneys and DC plan consultants urge executives to be careful in their investment-menu planning to reduce the risk of losing or settling Choosing a capital preservation option "requires a trade-off of risk vs. return," said Brian Netter, a Washington-based partner for Mayer Brown LLP, which represents sponsors in ERISA cases. "You must make reasoned, documented decisions. Find the answer that is most suitable for your company."