As a retirement plan consultant, I often get asked: “Is ERISA class action litigation becoming more of a risk for plan advisers?” I can’t predict the future, but I can address the fiduciary risks that need to be considered by ERISA advisers as existing 401(k) litigation continues to move through the courts, with new complaints filed just about every week. Unfortunately, even if a class action complaint seems frivolous to you, if it goes to discovery, it can mean a great deal of work and effort from you, your team and your client.

To start, I want to note both to plan advisers and plan sponsors that playing defense in fear of litigation should not be the foundation of a diligent, prudent process. That is not an approach that exclusively puts the plan participants’ best interest first. Certainly, risk management is appropriate, but a single eye to the duty of loyalty—for the exclusive benefit of plan participants—should be the cornerstone of a sound fiduciary process. That will lead to the best results, whether litigation comes or not. But if it does, you will be in a better position to manage through it.

Eric Dyson

Much of my information regarding litigation related to the Employee Retirement Income Security Act comes from direct experience as an expert witness. In my experience, there are few cases in which the adviser has been a named defendant. However, in most cases, the plan adviser has been part of the discovery process and has had to testify under oath in a deposition.

The number of documents submitted in the discovery process for an ERISA class action case can be overwhelming. I have worked as an expert witness in a case for which documents in discovery were more than one-quarter of a million pages. As an ERISA plan adviser, imagine you were required to submit for examination every page of every document used and generated in the last six years for one of your largest clients. This documentation would include every client email and every internal email that involves your client. Your client will be required to do the same. They will quickly turn to an attorney for help, and both will be seeking your assistance. The discovery process mandated by the court will most certainly require an extensive amount of your time.

Imagine that someone knowledgeable in the ERISA fiduciary process was going to spend several years and several hundred—or perhaps several thousand—hours looking at one of your clients and the end-to-end fiduciary process. Whether or not you are one of the named defendants, the process will consume a significant amount of your time and your resources.

As an adviser, what should you do to take proactive measures? Below are a handful of suggestions to consider. While these may seem simple and like common sense, not following these suggestions could result in additional effort required in the event of a Department of Labor investigation or during discovery in litigation.

Meeting Minutes

I often get asked what should be included in meeting minutes. I’ve heard people say, “Don’t write too much in the minutes. You don’t want to give too much information that will lead to trouble.” Unfortunately, this approach almost always backfires. Meeting minutes generally do not contain enough details. Here are five pointers for keeping minutes:

1. Document all decisions made by the plan committee or group;
2. Document the reasons for the decisions made;
3. Assume that in three years, everyone on the plan committee will be completely new;
4. Ensure the meeting minutes demonstrate the duty of loyalty; and
5. Ensure the meeting minutes demonstrate the duty of prudence.

The first two items are not  anything you don’t already know; it’s items three through five that will make a difference.

As a quick example, if you approach meeting minutes as a copy-and-paste exercise and have identical language for eight straight quarters regarding an investment review, then a question will arise with regard to loyalty and prudence. Include enough details that an independent third party reading the minutes would conclude that a prudent process was followed in the specifics at hand and that committee decisions were exclusively in the best interest of the participants.

Emails

Emails and other communication such as text messages can become discovery documents!

Please understand that your internal emails and messages, your email to clients, and their emails and messages to you could become trial exhibits. An email to your client stating, for example, “You’ve been with the same recordkeeper for eight years and have not done an RFP for recordkeeping services in that time,” would probably be best saved for a face-to-face discussion with your client. Remind your client to adhere to the same caution regarding emails, and messages, including and especially internal emails and messages.

Fiduciary Training

The courts want to see fiduciary training, and Department of Labor investigators will ask about fiduciary training. The individuals acting as plan fiduciaries are typically the ones who have the greatest risk and greatest obligation, but they are also, in many cases, the ones who have the least amount of time and the least amount of training. Plan committee members are on the front line of serving ERISA plan participants and need enough training to be qualified to serve in their roles as ERISA fiduciaries.

Use meeting minutes to document fiduciary training. Include an overview of topics covered and use the suggested outline provided above. For attendance at outside training or industry events, be sure to capture a record of this training to included who attended, the number of hours and the topics covered. Maintain copies of presentation material and training agendas.

Worst-Case Scenario

The worst-case scenario is that you, along with your client, discover a situation that may be interpreted as a breach of fiduciary duty. If this should ever occur, then strongly recommend that your client engage outside ERISA counsel as soon as possible. This way, outside counsel will be able to invoke attorney-client privilege. Your efforts and your emails can now be guided by an expert in the legal proceeding to the degree possible and can hopefully be used to protect your client, as opposed to being a potential liability.

In conclusion, ERISA litigation is showing no signs of slowing down and is ever-evolving in terms of areas the plaintiffs’ bar is targeting. The best preparation is a strong and consistent process of advisement that will help you and your client be ready for any circumstances that arise. Even if you do not face litigation, you will be following best practices for your plan sponsor and its participants.

Eric Dyson is the Executive Director of 90 North Consulting and a frequent witness in ERISA 401(k) litigation.