Dealing with Losses in ERISA Plans

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Information about Dealing with Losses in ERISA Plans

Published on December 15, 2008

Author: mortner


Losses in Retirement and Employee Benefit Plans: The Plan Administrator and Trustee's Fiduciary Duties Under ERISA : Losses in Retirement and Employee Benefit Plans: The Plan Administrator and Trustee's Fiduciary Duties Under ERISA Moshe Mortner Esq. : Moshe Mortner Esq. Presenter 130 William Street 6th Floor New York, NY 10038 Tel. 646-839-8530 The Market Meltdown and 401(k) Plans : The Market Meltdown and 401(k) Plans The staggering and unanticipated losses The Market Conditions : The Market Conditions The average diversified U.S.-stock fund is down 40.6% for the year The average long-term bond fund is down 11% The Standard & Poor's 500-stock index declined 30% over the past three months, its worst three-month percentage slide since 1987 The S&P 500 is down 43% from its peak in October 2007 Many retirement plans were too heavily invested in stocks and stock funds. : Many retirement plans were too heavily invested in stocks and stock funds. In recent years, financial planners and brokers encouraged plans to overload their stock allocation. Plans overexposed to volatility in equity markets Plans lost more than they should have in the market meltdown. Relevant Fiduciary Duties : Relevant Fiduciary Duties In the current financial crisis Who are Plan Fiduciaries? : Who are Plan Fiduciaries? Plan Administrator Plan Trustees Monitor and Investigate : Monitor and Investigate Review performance against the Statement of Investment Policy (SIP) of the investment managers Review performance of each investment option offered by the plan. Compare the results for their plan against appropriate performance benchmarks. Pursue available legal remedies : Pursue available legal remedies “[A] fiduciary shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan” “if he has knowledge of a breach by such other fiduciary,” “unless he makes reasonable efforts under the circumstances to remedy the breach.” ERISA § 405(a)(3) Personal Liability of a Fiduciary : Personal Liability of a Fiduciary ERISA § 409(a) imposes liability on a fiduciary “who breaches any of [his fiduciary] responsibilities, obligations, or duties.” ERISA permits civil suits for appropriate by a participant beneficiary, fiduciary, or The Secretary of Labor Reducing Liability toTrustees and Administrators : Reducing Liability toTrustees and Administrators Monitor Investigate Disclosure (Annual Reports, etc.) Pursue Legal Remedies Prudent use of consultants 401(k) Plan Claims against Investment Advisors and Investment Managers : 401(k) Plan Claims against Investment Advisors and Investment Managers Seeking recovery of losses from the Plan’s broker and the brokerage firm Broker-Dealer Deemed a Fiduciary : Broker-Dealer Deemed a Fiduciary ERISA will hold Brokers accountable as fiduciaries Without expressly accept that status. The Brokerage firm will also share liability as a fiduciary based on: The Securities Exchange Act Common Law theory of Respondiat Superior ERISA A Broker’s Heightened Standard of Care : A Broker’s Heightened Standard of Care Ordinarily, a broker needs only a "reasonable basis" to support a recommendation. But, if that broker is an ERISA fiduciary, recommendations must comply with ERISA's "prudent man" standard. The “Prudent Man” Standard : The “Prudent Man” Standard A fiduciary shall discharge his duties with respect to a plan… with the care, skill, prudence, and diligence… by diversifying the investment of the plan so as to minimize the risk of large losses…. FINRA Arbitration : FINRA Arbitration The Claims handling forum for Customer Claims against Broker-Dealers and their registered agents Advantages of Arbitration : Advantages of Arbitration No risk of creating liability Faster than litigation No depositions to attend More cost effective Private proceeding, not open to the public No Counterclaims from respondents No findings of fact made by the arbitrators, only an award Sample Claim : Sample Claim Single Pool Plan, started $10mm, on 1/1/08, down to $7mm Asset Value Down 30% Stock market down 40% Plan had mix of bonds and equities Not imprudent to be invested in equities, based on characteristics of the members, or instructions from the plan's fiduciary to the investment manager But, Pool invested heavily in financials, which as a sector is down 70% Our Services : Our Services Especially designed for 401(k) - Employee Benefit Plans The Mortner Law Office Plan Investment Performance (PIP) Report : The Mortner Law Office Plan Investment Performance (PIP) Report Identify appropriate performance benchmark, Opine how well plan is doing, Compare anticipated result v. actual result Is result explainable by factors that are in the realm of prudence? Legal analysis of Plan Document and legal duties under it. Legal opinion as to potential liability of the Broker-Dealer and the existence of a meritorious arbitration claim against the plan’s investment advisor or manager through FINRA Report will not state an opinion as to the conduct and performance of the plan administrator or trustees. Benefits of PIP Report : Benefits of PIP Report Shows beneficiaries and participants that the Trustees are dealing with problem of losses Useful for disclosure obligations, i.e., Annual Report Performs Fiduciaries’ duty to monitor and investigate plan performance Makes good use of outside consultant, adding further shield Reduces liability Can lead to pursuit of legal remedies, and recovery of losses Thank you for attending. : Thank you for attending. Contact Us : Email: Call: 646-839-8530 Contact Us

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