Focus on Plan Service Providers
2020 was a record-setting year for ERISA litigation with over 200 new ERISA class actions filed, representing an 80% increase over the number filed in 2019 and more than double the filings in 20181. Spurred in part by recent litigation focused on recordkeeper fees and sales practices, the DOL has shifted a portion of its enforcement resources from the sponsors of plans covered by ERISA to plan service providers2. As a result, DOL investigations of retirement plan recordkeepers are increasing in both occurrence and intensity. This may seem like good news for plan sponsors, however this practice actually enables the DOL to investigate hundreds or thousands of plans at once rather than individual plan sponsors, thus widening the net it casts to identify potential ERISA violations.
What you should know
The DOL has added indirect compensation (e.g. revenue sharing for mutual funds) as a focus of examinations into recordkeeper payments that could create conflicts of interest. This points to the agency placing increased importance on ensuring recordkeeper income is clearly disclosed and accurate.
TIAA struck a $97 million settlement in July with the Securities and Exchange Commission and the office of the New York Attorney General over its IRA rollover practices. TIAA is facing similar claims in a separate suit, having been recently sued over their sales practices. Plaintiffs claim that, as a recordkeeper, TIAA violated ERISA by providing misleading information to plan participants which prompted the transfer of assets to non-plan accounts, and that advisors at the firm received monetary incentives to pressure high-asset retirement savers into these rollovers. This litigation may have contributed to the DOL’s increased attention on recordkeepers.
Alight is now being investigated by the DOL following a lawsuit filed in 2019 that accused Estée Lauder and its recordkeeper (Alight) of lax protections of participant information. The Estée Lauder case along with several other cases related to a surge in hacking of retirement accounts likely spurred the DOL’s cybersecurity audit initiative.
Plan sponsors have the fiduciary duty to operate the plan in the best interests of participants and beneficiaries, and are responsible for hiring and monitoring outside vendors, including plan recordkeepers. Plan sponsors can help meet this obligation by:
- Selecting service providers that have the experience, internal controls, and compliance capabilities to meet expectations.
- Monitoring vendors to ensure that they are performing tasks as expected.
- Ensuring that recordkeepers and other service providers document and disclose all types of compensation and that disclosures are accurate and regularly updated.
- Enhancing internal cybersecurity practices for their benefit plans, confirming the practices of plan service providers, and educating ERISA plan participants about the importance of strong individual cybersecurity practices.
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