Last month, we outlined the employer's fiduciary responsibility for group health and welfare plans. This month, I will devote some time to telling a true story from earlier this year about fiduciary liability for retirement plans.
My business had an account with retirement plans. Both plans were CODAs. We performed an audit of the plans back in April. Employee contributions were withheld from employees' checks but not invested immediately, as the plan document required. What we found were checks sitting on an HR person's desk for as long as 45 days after they were initially withheld from plan participants' checks. Thus, the employer was not depositing the employee and employer contributions according to their asset allocations on a timely basis. These lapses in making timely deposits of plan participant money and employer contributions went on for at least two years. Suffice to say, it was a mess.
I cried foul, knowing the gravity of this fiduciary breach. I was fully aware of the potential consequences for the HR person who was a de facto fiduciary since she neglected her responsibility to deposit the checks. It was my job to notify her that she was personally responsible for making the plan participants whole. Neither she nor management had a clue about what I was talking about. And so I ask, would your clients have discovered this egregious error and understand it? Would you as the adviser?
This became a monster problem because some of the participant monies were going into common stock funds, which were enjoying a bull market during the period when they should have been invested.
I cautiously raised the U.S. Department of Labor flag and emailed the owners of the company. Nothing happened. The owners did not believe me. They went to their banker, who was the custodian of the accounts. He told the employer reassuringly, "Don't worry, these things happen all the time - you have not breached your fiduciary responsibility. We'll take care of it."
False assurance from the banker only shows that he did not understand ERISA's fiduciary responsibility provisions either. The breach continued as the befuddled employer went sour with all this legal talk.
I had the no-win task of telling my client that the banker gave improper advice and that my discovery of a fiduciary breach was real. That did not go over well. I got fired and the banker won.
Do the right thing
I know in the end that my company did what needed to be done. We advised the client on the infraction, we explained the proper rules for handling employee monies and we discussed how someone probably would have to take on the responsibility of figuring out what the profit or loss on those monies would have been had they been invested when they should have been. For those acts, we were terminated and told that we were being too regulatory and not easy enough in our advice to the owners.
Regardless of whether your clients are willing to listen and comply, it's still important to teach your groups proper benefit administration. Some will love you, and that's great. Some will hate you, but in the end you will have the satisfaction of knowing you did the right thing. If you fail to do the right thing, you raise the possibility of an E&O claim on yourself and you may not even have the necessary ERISA rider for that.
Davidson, CEBS, is founder of Davidson Marketing Group and FutureOffice Network. He is also on the faculty at the Sheldon B. Lubar School of Business at the University of Wisconsin, Milwaukee. Reach him at
