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What Fiduciaries Can Learn from the LaMettry’s Collision, Inc. Case

Debbie Damberg and Tony Severson, two of 114 participants in the LaMettry 401(k) Profit Sharing Plan, filed a class action lawsuit against LaMettry’s Collision in May 2016. What made the 401(k) industry take notice? The plan’s investment value totaled less than $10 million.

Historically, similar class action lawsuits have been considerably larger in asset market value.

The Suit

The allegations in the suit focused on two broad areas: payment of excessive fees and inappropriate investment selections. The suit claimed that the defendants had failed to actively monitor the providers, the fees, the share classes of the mutual funds offered for investment and the investments themselves. The lawsuit specifically cited violations of Employee Retirement Income Security Act (ERISA) section 404(a) and (b), commonly known as the exclusive benefit and prudence provisions.

The Allegations

The alleged implication was a six-figure loss of income to plan participants through excessive fees over a period of time, reducing the plan participants’ retirement account balances. The plaintiffs alleged that the defendants failed to monitor investments, service providers and fees; provide plan documents; evaluate costs; and provide disclosures.

My View

As a former U.S. Department of Labor Employee Benefits Security Administration senior investigator, my view is that the lawsuit alleged that basic fiduciary actions were not followed.

These actions include:

  • Rate or compare investment performance to peers and benchmarks.
  • Benchmark investment expense ratios. 
  • Issue required participant notices, especially fee disclosure notices.
  • Make certain plan documents and public records available for review or copy by participants.
  • Monitor the plan service provider(s) to ensure fees were proper and disclosed adequately on participant account statements.
  • Implement a process to review for and act on irregularities arising from fee disclosures, plan records access and fee transparency.
  • Obtain and compare service and fee benchmarking data to determine if fees and services were consistent with standards.
  • Consider total plan costs to services rendered and how those costs are paid, indicating a fee transparency issue.

Key Takeaways

We may never know whether or not the plan fiduciaries acted in the manner alleged in the class-action lawsuit. The plaintiffs withdrew their suit from Minnesota’s U.S. District Court before the defendants could file a response. This withdrawal may provide some temporary relief to plan sponsors, plan providers, advisors and especially plan fiduciaries; however, new fiduciary rules will be in place and effective April 10, 2017. Through these new rules, as published in the April 8, 2016, edition of the Federal Register, EBSA redefines the term “fiduciary” to be much more far-reaching and inclusive than its historical definition. Additionally, EBSA finalized the “Conflict of Interest Rule—Retirement Investment Advice”, which may make the rendering of investment information in the traditional sense nearly extinct.

Retirement plan fiduciaries should use this lawsuit as a reminder of what it takes to be successful. To maintain good habits in your own work as a plan fiduciary, ensure you have processes in place to:

  1. Regularly monitor plan investments, including performance and key investment criteria.
  2. Examine investment expenses, individual investment expense ratios and asset market value charges.
  3. Draft and issue required participant notices within regulatory timeframe.
  4. Make documents available including the summaries of plan description, material modifications and summary of annual reports.
  5. Meet regularly with plan service providers.