The Rosenbaum Law Firm P.C. Blog

Cerner Corporation is the latest 401(k) lawsuit target over its retirement plan, citing high fees and a breach of fiduciary duty.

Cerner’s plan has over $2 billion in assets. Plaintiffs allege that Cerner breached its fiduciary duty by failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

The complaint is short on facts. it states that the plaintiffs didn’t know all the facts necessary to understand that Cerner breached its fiduciary duties in violation of ERISA until shortly before the suit was filed. Besides, it says the plaintiffs didn’t have and don’t have actual knowledge of the specifics of the defendants’ decision-making process concerning the plan “because this information is solely within the possession of defendants before discovery.”

The complaint cites the usual expensive per head charges, as well as the belief that since passive funds are more expensive, Cerner’s use of it is a breach of fiduciary duty.

Federal courts like to keep their dockets moving and I’m sure there will be a time soon where they will try to move out the glut of 401(k) class action lawsuits by simply throwing out cases that are short in details on whether a plan sponsor breached their fiduciary duty. I think the plaintiff’s counsel is going to have a tough time in their cases where they are short on detail and just say the defendant plan sponsor breached their fiduciary duty didn’t pick the cheapest funds out there. If the defendant isn’t using the cheapest share classes available, that is certainly not prudent. But I think there are many situations where there is nothing wrong with using an actively managed fund because index funds aren’t great for every class and every sector.

401(k) litigation is a legal concept that evolves, many of the cases that were winners over the last 10 years would have been laughed out of court 20 years ago. I’m no legal scholar when it comes to litigation, but I think there will be a certain point in time where judges will decide that unless there is a full indication of a fiduciary breach that they won’t second guess 401(k) plan sponsors on which funds to pick. Plaintiffs and their counsel will have to show how not picking the cheapest funds is an actual breach because plan expenses are all about reasonableness and not about finding the cheapest provider and I think that includes funds as well.

A study from T. Rowe Price about 401(k) plan participants had some results that should really not shock anyone.

The study showed that people who participate in 401(k) plans are more confident about their financial futures than those who don’t participate—regardless of income or assets. It also showed that low-income households save more if they participate in a retirement plan. In addition, it showed that people who choose not to participate in workplace savings plans struggle more financially than those who don’t have access to workplace savings plans.

I love T. Rowe Price and I love studies that state the obvious.

My latest article for JDSupra.com can be found here.

My latest newsletter can be found here.

I always say that the retirement plan business is relationship-driven. It’s a business built on trust and it’s built on time. One of my dear friends in this business is James Holland, an advisor based in North Carolina. We started with a phone conversation nearly 10 years ago and it took time to develop.

I’m a fiduciary of a $100 million multiple employer plan, we recently switched our 3(38) advisor. So I was kind of shocked when I got a LinkedIn message from an advisor I don’t know who wanted to talk to me about this plan. It was clear that if this was about the plan so that he can be an advisor, I told him that we just made a change. I handled it professionally, but I’m just kind of shocked that as a pretty well-known ERISA attorney (that would be) would get an advisor prospecting the plan through a LinkedIn message. Even if the plan wasn’t attached to an advisor, there are a lot of advisors that I know and worked with over the years that could be a fit. Have LinkedIn messages replaced the cold call?

I was a little irritated when a person from my community was appointed to an elected position because of a vacancy. I never met the man, but I’m a little disgusted by him because of his past posts on Facebook. Borderline racist, disparaging comments to those in the community who have another viewpoint, and just other disturbing posts suggest that he isn’t someone that I want as an elected official.

My wife says I post too much on Facebook and she is probably right. I may post a lot, but I try to watch what I post. I avid any comments that could be misinterpreted and considered hateful or in poor taste. I’m a little shell shocked because I was accosted by my law firm’s managing attorney about some innocuous posts when I worked there. Your reputation in business means everything and you can’t let some silliness on social media get the better of you. Everyone loses their temper, but going online with diatribe posts means it’s likely to be preserved in one fashion or another.

I’ve seen way too many businesses and respected individuals who have suffered because they said way too much in social media posts that they couldn’t take back. I know I certainly say too much in many of my posts concerning old places I worked or organizations I belonged tom, but I always see that as a teaching moment. I try to avoid political comment on my business social media, but no one could accuse me of social media posts that could land me in hot water for being insensitive or divisive. The point is to avoid any social media posts that make you look like a creep.

I was an attorney for a third party administrator (TPA) in 2007 and one of our plan administrator said that a specific 401(k) plan we were the TPA for had a 7 year graded vesting schedule for matching contributions. The only problem is that 7 graded schedules were outlawed for matching contributions in 2002.

For 401(k) plans that permit hardship distributions, the rules changed, beginning on January 1, 2020. Make sure that your plan sponsors clients are administering their plan to the following mandatory changes.:

1. They must eliminate the 6-month suspension of elective deferral contributions following a hardship distribution made on or after January 1, 2020.
2. For determining when a distribution can be made on account of an “immediate and heavy financial need”, a plan can’t continue to use a facts and circumstances standard or prior safe harbor standards and must instead use the following standard and ensure that:
3. A hardship distribution not exceed the amount of the employee’s need;
4. The employee first obtains other available distributions under the plan and all other qualified or nonqualified deferred compensation plans; and
5. The employee must represent in writing that he or she has insufficient cash or liquid assets reasonably available to satisfy the financial need

All plans must be amended by the end of 2020. Make sure the amendment gets put in place too.

It was clear by the time that Carlos Beltran was interviewing for the Mets manager job that he was somehow involved with the Houston Astros being accused of stealing signs. I don’t know what Carlos Beltran told General manager Brodie Van Wagenen about the investigation, but whatever he said, it didn’t bother Van Wagenen at all. After hiring Beltran, Van Wagenen claimed that he didn’t see how what Beltran did as a player for the Astros would affect his job as Mets manager. Well two months later, it did as Beltran and the Mets parted ways. It’s clear that Beltran either lied or the Mets showed no concern. Regardless, the Mets have egg on their face.

When hiring people for your staff, you have to perform due diligence and if there is a concern as to any issues concerning a candidate, you need to know before you make the hire. I’ve seen so many bad hires when I’ve been in the industry and some unpleasant truths concerning a candidate are only uncovered after the employee is hired, then fired. Hiring decisions without all the facts is likely walking blindly, you’re going to end up getting hurt.

While I loved the fact that pooled employer plan (PEP) is an option as a multiple employer plan (MEP) under the SECURE Act, the problem is that one huge problem concerning MEPs remains and can’t be fixed by law. It’s the slow sales cycle in building up MEP assets to achieve the affordability that the MEPs are advertised for.

Creating a successful MEP is all about creating a plan of critical mass to support the fee charges and to support the costs of a plan audit. The problem is that the sales cycle for a MEP is very difficult and slow. I’m involved with a MEP that now has $87 million and that took 5 years to achieve.

It’s important that any MEP has a strong method of distribution. Having access to thousands of potential adopting employers is great, but the chances of them signing up are very small. No law can get out of a long time and hard work that is required to starting a MEP.