A series of recent settlements in ERISA lawsuits illustrates to defined contribution sponsors why an ounce of prevention is worth a pound of cure.
These settlements cover financial institutions that have filled their 401(k) plans with proprietary investments, provoking allegations of self-dealing that violate their fiduciary responsibilities under the Employee Retirement Income Security Act.
Although defendants admitted no wrongdoing and agreed to pay money, many settlements include non-monetary remedies for plan management practices that could have reduced litigation risk in the first place.
These requirements "are not onerous to a great extent," said James P. McElligott Jr., the Richmond, Va.-based counsel for McGuireWoods LLP, who represents sponsors in ERISA cases. "There's no excuse for people not looking seriously at this issue." Mr. McElligott, like other attorneys interviewed, declined to comment on specific cases.
Some settlements have been strictly financial ones, but the non-monetary requirements appear to ERISA attorneys as reflecting common sense for fiduciaries.
"Some of these things you should think of at the base knowledge level" of plan management, said Stephen Rosenberg, a Boston-based partner for The Wagner Law Group.
In recent settlements, for example, defendants have agreed to remedies ranging from hiring independent fiduciaries to monitor plans' investment selections to taking ERISA training.
Jerome Schlichter, the St. Louis attorney who has been lead plaintiffs' counsel in many ERISA cases, said he insists on non-monetary requirements as part of settlements.
"It will determine benefits in the future," said Mr. Schlichter, founder and managing partner of Schlichter Bogard & Denton LLP, St. Louis. "The value of non-monetary compensation in the future can dwarf the monetary compensation of the past."
In one of Mr. Schlichter's cases, BB&T Corp., Winston-Salem, N.C., agreed on Dec. 4 to pay $24 million to settle self-dealing allegations by participants in the company's 401(k) plan, pending court approval.
Among the non-monetary features is a requirement that BB&T plan fiduciaries hire a consulting firm that will issue an RFP for an unaffiliated investment consultant who will provide independent consulting services. This consultant would make "an objective evaluation of the options of the plan," the document said. BB&T plan fiduciaries also must participate in a training session regarding fiduciary duties under ERISA.