Alfred Hitchcock was a master of suspense. The beauty of his cinema and the reason it still captivates viewers is not what he shows you; rather, it is what he does not show you. Hitchcock left your imagination to do the dirty work. He knew that your imagination could fill in expertly placed gaps.
With his films, we simply get a bit of a start. But when there are gaps left in ERISA plans, we end up with much worse than just a start. We end up with a lawsuit. A quick troll through the Department of Labor website gives us a rundown of enforcement action. Gaps in contributions. Gaps in proper administration.
Lawyers are also looking for these gaps. They look for gaps in logic or action. This lawsuit against MassMutual is the most recent example. No one can know how the suit will end. But, like viewers with their popcorn watching a Hitchcock film, I am sure that compliance departments across the country are on edge. Their minds race to fill in the gaps left between the suit and the practices of their advisers. What other gaps are out there? Could our advisors put us on the hook if they recommended a provider employing a similar structure? Are our disclosures sufficient? Are our policies setting us up for a similar suit?
One of the gaps that continually scares me is the gap in determining the reasonableness of fees for covered service providers. As we are all aware, it is part of a fiduciary’s duty under ERISA to insure that all fees paid from plan assets are reasonable for the level of service being provided. It is commonplace to compare the fees and a checklist of services against those of other plans around the country. Honestly, that scares me. It scares me because checking to see if your answer is the same as someone else’s seems like a poor basis for reasonable. For example, you may be paying the same fee for education services; however, does this standard benchmarking evaluate the amount of education? Or the time spent working with participants on education? The same example holds true for other services as outlined in the fee disclosures mandated under 408(b)(2). I have discussed some of my concerns in another post. And this gap in what is promised and what has occurred is another Hitchcock nail-biter. As we have seen in other suits recently, the potential liability is not in the decision. Instead, it is in the process.
So how do covered service providers eliminate these Hitchcock gaps?
First, it is important to recognize that liability that is already out there cannot be put back in the bottle. Rather, we must seek to systematically eliminate the liability going forward. Recognizing that reasonableness of fees is under scrutiny right now, you should employ a process that definitively measures committed resources relative to fees. Comparing your fees to the guy’s down the street does not insure reasonableness.
Second, employ a process to insure that you have done and are doing what you promised you would do. Comparing a list of activities performed for your clients compared to a list of services stated in 408(b)(2) disclosures is a good start. Any discrepancy between the two is a Hitchcock gap that will leave compliance sleepless and lawyers licking their chops.
Finally, employ a system to utilize exemptions in the proposed Department of Labor Fiduciary Rule. For example, the proposal exempts education from the scope of fiduciary. Use the exemption. Track your activities that fall under that provision. But remember, all of your documentation can also be used against you. As a former mentor used to say, “If you don’t want it on the front page of the Wall Street Journal, leave it out.”
In short, QPSteno can help with all of these strategies. If there is anything that I can do to help, please reach out (firstname.lastname@example.org). Remember: With a complete plan, there is little to fear.