The Importance of Addressing Participant Complaints

If a sponsor does not respond, they could face a civil and/or DOL lawsuit

Participants do lodge complaints against their retirement plans from time to time, and all of these complaints should be addressed, experts say.

If a retirement plan sponsor ignores a participant complaint, that participant is liable to turn to the Department of Labor (DOL) on their own or hire a lawyer who will do so on their behalf, says Blaine Aikin, executive chairman of Fi360 in Pittsburgh.

“More than 60% of the audits that result from participant complaints result in action, which could include civil or criminal penalties and/or direct the sponsor to pay the participant’s attorney fees,” he says. “So, the sponsor could end up facing not just private class action lawsuits but lawsuits by the DOL as well. The plaintiffs are becoming more successful and sophisticated. Their attorneys are becoming quite skilled at drilling down on what resonates with the courts.”

Common complaints include a lack of access to education or resources about the plan, says Josh Sailar, an investment advisor with Miracle Mile Advisors in Los Angeles. “Such complaints have merit,” he says. “Participants should always be able to have questions about their plan answered, be that through online resources or the ability to reach out to a person.”

Another common complaint from participants is that they cannot access their funds, should the plan not permit loans or hardship withdrawals, says Tom Conlon, head of client relations at Betterment for Business in New York.

Kevin Haskell, a partner with Aegis Retirement Partners in Concord, Massachusetts, agrees: “The most common complaint we receive from participants is lack of access to their retirement funds,” he says. “Due to IRS [Internal Revenue Service] and plan rules, many employees are unable to take a distribution while they are still employed. Many plans also do not offer a loan provision, or, if they do, some plan sponsors restrict loans to only one or two outstanding at a time, or restrict the availability for only hardship withdrawals.”

Conlon adds: “There are also some participants who are hyper-concerned about fees, and this can also be a common complaint. If you have a lot of participants complaining about fees, you might find yourself litigating with them. It is very common for participants to sue fiduciaries over fees. If you have a process to determining that your fees are reasonable, you have less to be concerned about. If you don’t have the necessary tools to do this rigorous analysis, hire an ERISA [Employee Retirement Income Security Act] 3(38) fiduciary to provide assurance you are acting in the best interest of participants.”

The best way to avoid questions or complaints about fees to be fully transparent, Haskell says. “We spend a lot of time educating our plan sponsors and plan participants on how fees are applied,” he says. “Once participants are fully aware of all the rules and fees associated with their retirement plans, they have a higher comfort level and tend not only to stay in or opt into the plan, but to participate at higher contribution levels.”

DWC – The 401(k) Experts responds to questions about fees in person, says Keith Clark, a managing partner with the company, based in St. Paul, Minnesota. “If the complaints are about fees or investment options, the appropriate contact at the plan sponsor should take the time with the participant, in person, to reveal the due diligence reports from the selection process and the ongoing monitoring reports,” Clark says. “Full disclosure is the best approach. Some plan sponsors include participants on a plan advisory committee, which can make this process easier.”

It is also very important to document all communication with the participant, Clark adds: “Document and follow up until the complaint is closed. It is closed when the participant acknowledges their question or issue has been satisfied. The best recordkeeping service provider call centers record and document all calls. The latter is especially important if a follow up is required to involve the appropriate party.”

Participants sometimes also complain if they are not offered mobile applications to access their accounts, says Joseph Conroy, a financial planner with Synergy Financial Group in Towson, Maryland. “Complaints about technology absolutely have merit,” he says. “Today’s participants want to enroll, access and rebalance their accounts from their smartphones. While they are willing to use paperwork and desktop computers to do those things for now—in a few years, they won’t”

Finally, participants often ask for additional asset classes to be included in the investment lineup. “If a lineup is missing asset classes, that is a huge deal,” Sailar says. “If they are asking about a specific sector, you can address that by offering an S&P 500 fund. Most sectors they ask about are typically in the fund lineup already. It is just a matter of educating the participant. For example, if the participant is asking about FANG stocks—Facebook, Apple, Netflix and Google—each of these make up a large portion of the S&P 500 index.”