High-profile attorney and 401(k) Specialist cover subject Jerry Schlichter has a full pipeline and plenty to do.
We thought an awareness of high fees and possible punishment would cause 401k plan sponsors and advisors to wake up, act in a greater fiduciary capacity, and therefore slow his “business.” We were wrong.
Here’s what the head of the law firm of Schlichter, Bogard, and Denton had to say about the fiduciary rule’s implementation (finally).
Q: Can the rule be stopped or undermined at this point?
A: There is a significant amount of discretion that both the secretary of labor and the head of [EBSA] (formerly run by Phyllis Borzi) would have, which they can use to bring enforcement actions or not bring enforcement actions. The philosophy of the person or persons in those positions will have a significant impact on how vigorously the rule is enforced.
Q: What’s happening for you and your cases now that the DOL’s fiduciary rule has initially been implemented?
A: We are working very hard on the cases we have filed, and we are looking forward to multiple trials coming up in the months ahead. Without a doubt, there is a heightened awareness by average people about the role of fiduciaries, either in their IRAs or their retirement plans.
Q: Will the overall number of lawsuits increase?
A: I don’t expect that there will be any big uptick anytime soon in the number of cases filed as a result of the fiduciary rule being implemented.
The rule has gone into effect, but the Department of Labor has said that they are not going to fully enforce the rule at this time, and there is a grace period for brokers and advisers to use. So there is not going to be significant DOL action, in my opinion, for at least the rest of the year.
Q: What initiated the suits brought against retirement plan sponsors at colleges and universities?
A: We spent over a year looking at large 403b plans before we ever brought a suit, just as we spent about a year and nine months looking at the 401k industry as a whole before we ever brought suit.
It turns out that, again, there had never been a case brought for excessive fees in a 403b plan, yet fiduciaries have the same obligation as they do in 401k plans. They must make sure fees are reasonable, that they operate the plan for the sole benefit of the employees and retirees and that it is operated in a manner consistent with what the size of the plan’s assets are. The 403b plans against which we’ve sued have violated those fiduciary obligations, in our opinion.
Q: Are 403b plan sponsors tightening their fiduciary practices in light of the lawsuits?
A: We are seeing a movement in the direction of greater awareness and consideration of the fiduciary obligation in university committees and those running their 403b plans. We are seeing a move in the direction lower fees and removing multiple recordkeepers which result in lower recordkeeping fees, as well as a greater adherence to fiduciary standards. Clearly, in some cases, 403b plan sponsors were not strongly following their 403b fiduciary obligations. That’s now changing.
Q: What happens now with some of the high-profile cases you’ve filed?
A: We have cases that we filed more than a decade ago which are now going to trial. We’re going to trial in Tibble v. Edison next month in Los Angeles, a case argued before the Supreme Court. We’re also going to trial later this year with Tussey v. ABB, which was the first case ever of a 401k to be tried. Both of those are back in the trial courts after multiple appeals and are still going strong with damages to be determined.
Looking at the long run, there is no question that 401k fees are coming down and that is a good thing for American workers and retirees. If we get to the point where everybody is in compliance and we don’t have any cases, that’ll be good. We’ll find something else to do.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
And who controls and/or monitors what attorneys charge? Should attorneys be forced to repay the legal fees of the plaintiffs in these cases if it turns out they are wrong? I for one, think it would stop many of these ambulance chasers who have turned from personal injury law to cases like this….