There are always plenty of new retirement plan investment performance and fee cases, and it’s hard for a plan sponsor, even one that is doing everything properly, to be assured that it won’t be the target of a lawsuit.
A recent case serves as a reminder of the very basic guidance plan sponsors often hear from attorneys and other retirement plan advisors: if you put it in writing that you’re going to do something, be sure to do it, and be sure to document that you did it. For retirement plans, this comes up with respect to a plan’s investment policy statement or “IPS”. In Macias v. Sisters of Charity of Leavenworth Health System, the Colorado federal district court did not grant the defendants’ (the plan sponsor and its board, the retirement investment committee, and others) motion to dismiss the case for failure to state a claim, and the reason for the denial related to allegations of defendants’ failure to follow an IPS. Even if a defendant is confident that it will ultimately win the case, dismissing it at this point saves the onerous legal costs of getting to that win; due to the costs of litigation, many of these cases end up settling. In this case, the court concluded that the plaintiffs’ allegations that the defendants failed to evaluate the performance of the plan’s investments at least once a year against certain benchmarks defined in the IPS was enough to state a plausible claim that the defendants failed to follow a prudent process. In these cases, the process a plan sponsor engages in often can become more important than investment results, and an imprudent process can lead to greater legal risk.
While a retirement plan isn’t required to have an IPS, it’s considered a best practice, and the plan’s investment advisors will want to have this document in place to make sure there is agreement on the decisions and standards on which their services will be measured. Reviewing that IPS each year to make sure that the retirement investment committee or other investment fiduciary is following the required processes and conducting sufficient oversight of investment alternatives and plan expenses would be wise. Then, be sure to document any actions or decisions in writing; if it’s not documented, it may become a factual issue that keeps a case alive. Even doing all of this can’t completely protect a plan sponsor against a case moving into costly discovery, especially where fees are involved, but it will help to put the plan sponsor in the best possible position and may help get a claim related to investment performance dismissed.