I don’t like to fear-monger. So in the past when a plan sponsor or advisor tells me “only the big plans are being sued over investments,” I nod my head and say, “Yes, today that is true” and add there is a higher likelihood of a DOL/IRS audit or operational failure. I still believe that’s true. However, we’ve always suspected that the lawsuits would eventually come down market and now we’re seeing that happen. I remember having dinner with Greg Kasten, our CEO, and an advisor in 2006; we talked about the potential for lawsuits – Greg commented that someday participants will say, “I don’t have enough money to retire but, Mr./Mrs. Employer, you’ve got lots of money…so if I can just have a little of your money, I’ll be fine.’” It feels like that day is here.
In Damberg v. LaMettry’s Collision, Inc., D. Minn., No. 0:16-cv-01335, the participant-plaintiffs are part of a 114-participant plan that had (in 2014) less than $10 million in plan assets.
While it’s too early to know if this lawsuit has legs, there are a few things that jump out at me as I read through the complaint:
(1) Voya is not named in the lawsuit. Like most other service providers, Voya will say, “We’re not a fiduciary” and it would be up to the plaintiff’s attorneys to prove they are. It’s much easier to go after the named plan fiduciaries – there’s no doubt about their fiduciary status.
(2) These are long-term employees bringing the lawsuit – Ms. Damberg worked at LeMettry’s for 30 years and participated in the 401(k) plan the entire time; Mr. Severson worked there for nearly 25 years and also contributed to the plan the entire time.
(3) It would appear from the 5500 that the advisor is being paid somewhere in the neighborhood of 60 bps but he/she is not named in the suit. Why? My guess is because the advisor is not a fiduciary (under the old definition). The plan sponsor has a duty to prudently select and monitor their plan’s service providers, considering both services and compensation. What measureable benefits were provided for the advisor’s compensation? While I don’t know the advisor’s service model, at first blush 60+ bps on a $10 million plan is well above the median.
(4) No matter how the lawsuit turns out, I think we can agree this is not good publicity for LaMettry’s Collision. The advisor’s name is not on the 5500 and is not named in the lawsuit but what if it was? It would not be good for the advisor’s reputation.
Would it make a difference if the Unified Trust was LaMettry Collision’s service provider instead of Voya? Absolutely. Unified Trust is named discretionary plan trustee –duty of loyalty, fully transparent, no conflicts of interest and responsible for the assets of the plan.
“Plaintiffs bring this action pursuant to 29 U.S.C. § 1132(a) on behalf of all similarly situated participants and beneficiaries of the LaMettry’s 401K Profit Sharing Plan (“Plan”) to recover financial losses suffered by the Plan and obtain injunctive and other equitable relief for the Plan from LaMettry’s (the Plan Sponsor) and Chief Financial Officer Steven P. Daniel and President Joanne M. LaMettry (Daniel and LaMettry, collectively, “Trustees”) based on breaches of their fiduciary duties.”
The President and CFO of LaMettry Collision are the trustees named in the suit. In contrast, Unified Trust is the named discretionary plan trustee on the plans we serve. If a plan sponsor knew they could allocate responsibility and liability for plan assets to someone else, do you think they would want to? Given that option today, what do you think the folks at LaMettry Collision would say?