This case involves a retirement plan sponsor who hired an adviser for the plan. The defendant worked for a small company, and had been an employee for over thirty-three years. Part of her job was to manage the retirement plan for the employees of the company. The defendant did not have extensive experience with long-term money market investments, as most of her experience was in the capital market. She hired a new investment adviser to manage the plan, based upon a recommendation by several peers. She did not verify the credentials, nor did she review prior success rates, of the investment adviser, beyond a review of the adviser’s resume. Also, because of her lack of exposure to specific financial services, she gave him full discretion to make trades on the plan as he saw fit. Six months after hiring the investment adviser, the defendant and several employees met to discuss the progress of the retirement plan. At that time, it was reported that the adviser had lost 58% of the fund. The employees brought suit against the retirement plan sponsorship for breach of fiduciary duties.
Question(s) For Expert Witness
1. Did the plan sponsor owe a fiduciary duty to the employees of the company, and what actions should a plan sponsor take when hiring an investment advisor?
Expert Witness Response
Both the plan sponsor and the advisor owe a fiduciary duty to the employees who have paid into the plan. A fiduciary duty arises when one individual is responsible for administering duties for the benefit of another. In this case, the plan sponsor made the right choice in hiring the advisor because of her lack of experience with investing. By giving the advisor full discretion to make trades the advisor owes the employees of the plan a fiduciary duty under the Employment Retirement Income Act 3(38). Even though hiring an advisor mitigates some of the plan sponsor’s liability, it does not completely eliminate her fiduciary duty. If a plan sponsor brings in an advisor, the sponsor has a fiduciary duty to extensively review the qualifications, investment strategy, and to verify any specifics of the advisor. Specifically, in this case, the exact steps that the sponsor took in hiring the advisor, and whether the advisor was certified by the FPA or CFP board, would be critical in determining the nature of any breach. A full review of the facts of the case is needed, but based on the preliminary information, and the quick review that the plan sponsor performed, it appears that the plan sponsor breached their fiduciary duty. I have over thirty-six years of experience advising and working with employee retirement plans, and I am very familiar with this type of case.
About the author
Michael Talve, CEO
Michael Talve stands at the forefront of legal innovation as the CEO and Managing Director of Expert Institute. Under his leadership, the Expert Institute has established itself as a vital player in the legal technology arena, revolutionizing how lawyers connect with world-class experts and access advanced legal technology. Michael's role involves not only steering the company's strategic direction but also ensuring the delivery of unparalleled intelligence and cutting-edge solutions to legal professionals. His work at Expert Institute has been instrumental in enhancing the capabilities of attorneys in case preparation and execution, making a significant impact on the legal industry's approach to expert consultation and technological integration. Michael's vision and execution have positioned the Expert Institute as a key facilitator in the intersection of law and technology.
