Читать книгу Successful Defined Contribution Investment Design - Gao Ying - Страница 14

In 2014, we sat with James O. Fleckner, Partner and Employee Retirement Income Security Act of 1974 (ERISA) Litigation Practice Leader at Goodwin Procter LLP, to talk about how plan sponsors can reduce the risk of litigation. Fleckner first provided some background on the Employee Retirement Income Security Act, a 1974 federal law that is intended to “help protect the interests of employee benefit plan participants and their beneficiaries by establishing fiduciary duties of care, plan disclosure requirements and more. This federal statute governs most private employee benefit plans, including defined contribution plans.”

To protect themselves against lawsuits, “Plan sponsors should understand and fulfill their fiduciary duties,” Fleckner comments. These include the duties of loyalty, prudence, diversification, and fidelity to plan documents. Loyalty focuses plan sponsors on doing what is in the best interest of participants, rather than on what may be of value to themselves or their company. “We’ve seen this duty raised in cases that have alleged that the plan fiduciaries cared more about saving money for the company than they did about doing what was right for the participants,” he notes.

Prudence, in contrast, focuses on the process for making fiduciary decisions; for those lacking expertise to make decisions such as about investments, the government suggests they hire experts. Fleckner also discussed the duty of diversification, which is intended to help reduce the risk of losses. Plan sponsors are guided by the provisions of ERISA section 404(c) in offering at least three diversified investment choices within the plan. And, finally, there is the duty to follow plan documents.

ERISA litigation may arise when it is alleged that a plan sponsor has failed to meet any of these fiduciary duties, or to challenge technical violations of ERISA’s prohibited transaction rules. Unlike in DB plans, where the company bears the cost in the event of an error or misjudgment, in DC plans the participants bear both the upside and downside risk – hence Fleckner commented that “we see few DB lawsuits and many DC cases. Also, since many of these fiduciary duties are left open to interpretation or to the particular facts and circumstances of a given case, this area exposes plan sponsors to litigation risk.”

In the end, says Fleckner, fiduciaries need to demonstrate that they care about their participants: “In defending against any litigation involving those choices, it is most helpful to have a written record of the consideration that the fiduciaries gave in arriving at their decision. That way, we can show the judge that, in fact, the fiduciaries were evaluating options and landed on the ones that they felt were most appropriate for their participants.”