No 'Yes' Men (or Women)
Alison Cooke Mintzer (photo by Chris Ramirez)
I’ve just finished the second of two weeks on the road, traveling to five cities for our annual Best of the PLANSPONSOR National Conference (PSNC) roadshow event, speaking to, and with, plan sponsors and advisers. As always, a hot topic is litigation, and sessions touched on several cases and their implications.
One of the most emphasized was the suit brought against New York University (NYU) by Jerry Schlicter on behalf of school employees, because it has lessons for both plan sponsors and plan advisers.
As Judge Katherine B. Forrest, for the Southern District of New York, observed in her opinion, this was the first case to go to trial “of at least 11 groups of plaintiffs—all represented by the same counsel—asserting ERISA [Employee Retirement Income Security Act] claims against their university employers.” The bench trial—i.e., with a judge, no jury—was held in late spring and the decision released in July. Twenty witnesses testified, including, of note for this column, plan committee members and the plans’ adviser from Cammack Retirement Group.
The plaintiffs claimed that the plan committee failed to fulfill certain of its fiduciary obligations under ERISA, causing losses to the plan of more than $358 million. (For more about the allegations, visit planadviser.com.) While the plans’ adviser was named in an amended complaint, the judge dismissed that complaint relatively early in the process.
In her decision, Forrest wrote, “plaintiffs have not proven that the committee acted imprudently or that the plans suffered losses as a result.”
This column could stop here and simply accept the good news that the plan sponsor prevailed. However, having discussed this case at length for weeks, I think that would be missing the moral of the story.
Let’s start with the beginning of the quote I excerpted from, above: “While there were deficiencies in the committee’s processes—including that several members displayed a concerning lack of knowledge relevant to the committee’s mandate—plaintiffs have not proven …” The judge consistently used words such as “concerning” and “troubling” regarding committee members and their testimony. One did “not demonstrate the depth of knowledge [to be] expect[ed] from a fiduciary,” and another seemed to lack “a satisfactory understanding of key documents and her role …”
Yet, there was a silver lining, what probably saved the school from a guilty verdict: Cammack and Tina Surh, who was NYU’s chief investment officer (CIO) and a committee member from 2010 through 2014. “Surh appeared to be very knowledgeable [about] investing generally,” the opinion says and states that she read materials and met with portfolio managers at TIAA, as well as Cammack team members, to discuss market trends, investment options, and NYU’s investment policy statement (IPS). Surh also testified that she “questioned [Cammack] and discussed … the basis for their views” on the plans’ investment options.
The adviser, who has served the committee since 2009 in that role, and as a co-fiduciary, “displayed deep knowledge and understanding of the NYU plans as well as the offerings and capabilities of vendors such as TIAA and Vanguard,” Forrest wrote. The adviser was a retirement plan specialist, able to use his and Cammack’s industry perspective and resources to provide advice to the plan committee.
So, despite the court’s issues with how some members treated their fiduciary duties, “it does not find this rose to a level of failure to fulfill fiduciary obligations. Between Cammack’s advice and the guidance of the more well-equipped committee members (such as Surh), the court is persuaded that the committee performed its role adequately,” she wrote.
This could have easily gone the other way, though, attorneys noted at Best of PSNC, reminding attendees of the importance of fiduciary training for committee members.
Another takeaway was the judge’s disagreement with a point made in committee member testimony—that “they could defer virtually entirely to Cammack for expertise and information and rely on its recommendations.”
“No fiduciary may passively rely on information provided by a co-fiduciary,” she wrote. “Cammack’s appointment … never has entitled the committee … to unthinkingly defer to Cammack’s expertise—even when [that dwarfed the committee’s].” To fulfill its duties, the committee needed to vet Cammack’s advice and make informed but independent decisions.
“Blind reliance is inappropriate,” Forrest said, and “kicking the tires” of the fiduciary’s work is required.
As advisers, you of course want clients to trust you and value your skill set. But they can’t put blind faith in you. Helping them engage more with plan decisions—and noting that in the minutes—will benefit all. While this case dealt with a 3(21) co-fiduciary, one might guess the judge likely would also expect some engagement from fiduciaries using 3(38) services, at least to monitor that provider’s skills.
When I started working at PLANSPONSOR magazine 15 years ago, I often heard people say best practices trickled down from large plans to small plans and the billion-dollar plans were run by experts. I think we all know that isn’t always true. This case reinforces that, even at the largest plans, many at the plan sponsor level may not be experts but still have fiduciary responsibilities. For 2019, maybe it’s a good idea to put fiduciary training on the committee calendar.