Is your organization prepared for a lawsuit if you are sued for not monitoring your retirement plan? Many non-profit and church organizations thought they were immune from fee litigation on their defined contribution plan. The Schlichter law firm shattered this myth in August 2016 when it filed 12 lawsuits against 403(b) plans, charging the fiduciary with negligence in monitoring the plan.
What would happen if someone sued your organization? Could you defend your business practices? It can happen to you. The last few years have seen an unprecedented number of lawsuits regarding fees for retirement plans. These lawsuits have resulted in nearly $1 billion in fines, penalties and settlements. The Schlichter firm alone sued prominent universities including Yale, Duke, Northwestern and Georgetown.
One university, New York University (NYU), fought back and won, even counter-suing Schlichter for bringing a frivolous lawsuit. What did NYU do differently to defend itself? NYU showed its due diligence in the following manner:
- Its committee/consultant had performed two request for proposals (RFPs) within the past 10 years
- They reviewed how they were charging expenses, and why they elected this approach
- Its committee met regularly and had minutes of the meeting
- The committee members understood their role as a fiduciary
- They documented the entire process
NYU’s committee used a list of best practices to diminish the chance of losing in court. Your organization’s retirement plan committee or consultant should also use them. They include:
- Understand fees; benchmark fees annually; complete RFP’s
- Ensure that committee members receive training/understanding of the role
- Review the investment process when making decisions
- Meet at least semi-annually
- Document, document, document
Can You Do It Yourself?
While NYU’s committee performed its due diligence exceptionally well, not all non-profits and church organizations have the time and resources necessary to take on a do-it-yourself fiduciary role. For these organizations, a turnkey approach to retirement plan management could be the answer. With a turnkey approach, employers are assured that due diligence is being performed on their behalf by the plan while still maintaining control over the best course of action for their organization.
In a turnkey approach, the employer is not the fiduciary for the plan, thus lessening its fiduciary exposure. The plan has a retirement Board elected by participating employers and, after the employer adopts it, the Board performs investment selection and monitoring. All services are provided under the plan, eliminating the need for additional vendors.
The Christian Brothers Retirement Savings Plan (CBRSP) offers a turnkey approach that performs all the due diligence that enabled NYU to defend itself successfully from litigation, and then some. Recently, an independent firm, Retirement Plan Analytics (RPA), performed a benchmarking of CBRSP fees and created an inventory of the services provided to the Plan. RPA also sent a Request for Information (RFI) to the Plan’s outside record keeper, Vanguard. The purpose of the RFI was to show due diligence on reviewing fees and possible enhanced services. All the results were extremely positive.
Lower Fees and Comprehensive Services
The CBRSP uses an economy of scale by combining Catholic Church employers into a multiple employer plan. This provides leverage to receive better pricing in the marketplace.
However, fees are not the only criteria to review. To protect your organization from litigation, plan fees must be reasonable in light of services received. Comprehensive services provided in the Christian Brothers Services Turnkey approach include:
- Daily valued record-keeping
- Plan Document including updates
- Comprehensive employee communications
- On-line employer and employee access
- On-site employee meetings
- Ability to accept multiple employer payroll feeds
- Ability to allow asset transfers from existing 403(b) plan
- Ability to perform non-discrimination testing
No matter if your organization adopts a do-it-yourself or a turnkey method for retirement plan management, you must perform due diligence. Keeping your organization out of the courtroom is the goal.
If you would like more information on how to protect your organization from costly litigation, watch the free CBS webinar “Can Your Organization Defend its 403(b) Plan Costs.” For more information on the Christian Brothers Retirement Savings 403(b) Plan, call 800.807.0700 or email firstname.lastname@example.org.