Financial markets are reeling, and anxious pre-retirees watch their DC accounts with added worry. Uncertainty abounds and a growing number of participants are beginning to understand that their nest eggs are too small for retirement. Uncertainty has the potential to become blame, as a flurry of new ERISA-related lawsuits demonstrates, and the spotlight of scrutiny shines brightly on employers.
- Mimms v. AIG: In September, a former AIG employee filed suit against the company, alleging that 15 of its directors are personally liable for violating ERISA guidelines.
- Keri Evans and Timothy Whipps v. W.R. Grace & Co.: The 1st U.S. Circuit Court of Appeals decided, in response to the LaRue case, that the plaintiffs have a right to file suit under ERISA against their employers for alleged breach of fiduciary responsibility.
- Vaughn v. Bay Environmental Management Inc.: Coming from the appellate courts last month, the 9th U.S. Circuit Court of Appeals overturned a lower court decision and ruled that participants, indeed, have the right to pursue fiduciary breach lawsuits. The 9th Circuit is now the seventh such appellate panel to recently come to such a decision.
The cases above point to a potentially alarming trend. It’s not clear whether the lawsuits are being driven by ex-employees or ambitious law firms. Either way, these lawsuits are taking advantage of LaRue to sue plan sponsors.
So why are former employees still on your plan books?
Rolling out former employees seems obvious, but advisers should consider how to roll them out while minimizing the risk of a lawsuit. Remember, the alleged liability comes from having a fiduciary responsibility for all participants, including terminated participants. This is your opportunity, as the expert, to help your sponsors best limit their exposure to terminated participants; and a key opportunity is to offer them a program that helps them make a sound rollover decision.
Rather than rely on a rollover alternative that steers all terminated participants into one–and only one–rollover IRA, advisers should seek to introduce an independent provider of rollover services to their plan sponsor clients. By partnering with an independent provider that emphasizes participant help from trained experts, you can set up a rollover program that will help participants gain:
- One-on-one investment education,
- Access to unbiased investment options,
- Assistance with their rollover transaction, and
- The opportunity to either take control of their retirement destiny or elect that they are content to stay in the plan and satisfied with their employer’s management of their funds.
Providing your participants an easy and informed solution for managing their own retirement account is crucial. With a proactive program that can document participant outreach and response, you can demonstrate that your participants have been afforded the opportunity to review their personal circumstances and have chosen to take control of their own retirement assets. With access to these resources, participants who elect to stay in the plan effectively decide that, at least up to this point, staying in the plan is a better option than moving out of the plan. If the former employee chooses to leave the plan, they do so with the aid of a helpful process and an informed decision.
Previous articles in this series are:
- Perspective: The Efficiency of Adding an Auto-Rollover Provision (September)
- Perspective: Helping Your Plan Sponsors Avoid the “Cash Out’ (August)
- Perspective: Strategies for Revenue Enhancement (July)
- Perspective: Staying on Top of 2008 Plan Changes (June)
- Perspective: Wake Up! (May)
- Perspective: Understand Your Clients to Improve Your Bottom Line (April)
- Perspective: Emerging Challenges for Plan Management (March)
- Perspective: Turning Automated Rollovers into a Win-Win (February)
Spencer Williams is President and CEO of RolloverSystems, an independent provider of rollover services. Over his career, Spencer’s experience spans starting, building and leading businesses in the financial services industry. Prior to joining RolloverSystems, Spencer served in numerous roles with MassMutual, including founder and CEO of Persumma Financial, LLC (a MassMutual Financial Group company) and as a leader in creating and building the company’s retirement income and rollover IRA lines of business.
© 2008 RolloverSystems, Inc. This article is protected by copyright law. Any redistribution or commercial use in whole or in part is strictly prohibited without the express written consent of RolloverSystems, Inc. The information provided herein is for educational and informational purposes only and should not be considered investment advice.