Want To Shift Some ERISA Liability?

Posted on June 23, 2011. Filed under: Uncategorized |

Written By:

Matthew Craig

SVP – Sales


Ph: (919)414-8663

The Problem:

We live in a litigious world!  Today, nearly 1 in 7 Federal lawsuits is an ERISA case.  Kraft gets all the headlines, but there are thousands more.  Litigation is found on both the Plan and Participant levels.  In all likelihood, pending regulatory changes may increase (perhaps even dramatically) litigation risks.


Our Solution:

RJ20 is an insured 3(21)(a)(ii) Fiduciary.  When clients use our allocation solutions, future Participant tort liability shifts from broker’s, consultant’s and Sponsor’s shoulders to ours.  This is a responsibility that RJ20 takes on willingly and acknowledges in writing in the first paragraph of our contract. 

When a plan is generated (whether accepted or not), it is logged and retained by our system.  Once done, future Participant tort liability shifts over to us.  We capture and retain all information on individual client webpages.  From a fiduciary perspective, these saved webpages provide for the shifted liability.   In the future, one can’t argue they weren’t advised to take a specific path, which may differ from what they actually chose.

 We help shield you from the “No one ever told me” and “someone should have told me” types of liability, e.g. 

  1. No one ever told me I shouldn’t have 80% of my 401k in company stock (think Enron).
  2. Someone should have told me that 75% of my 401k in emerging markets was risky.
  3. No one ever said I should have broader diversification to minimize risk.
  4. Someone should have told me that I should save more than I currently do to reach my desired retirement timeframe and goals.
  5. No one ever told me that holding large cash balances involved its own set of risks.

 A Boston based discount brokerage firm is known for having deep pockets, and does a ton of software development in house.  However, they didn’t build their own Participant allocation/recommendation solutions.  Instead, they hired an outside vendor, and it is important to understand why.  They offered the service based on client demand, but they outsourced it for liability shifting reasons.  Every time one of their clients runs a plan, much of the ERISA risk shifts to another firm.  They now have a million clients who are effectively off their books from a liability perspective, but remain on the books from a revenue perspective.  Wow, talk about an enviable position.

You can replicate their success here!  Our solutions offer a colored line for the rest of us, but with greater functionality, much more robust analytics, higher utilization rates, CFP top tier support, and a significantly lower price point.

We also help sponsors reach a broader audience.  Irrespective of how many kickoff meetings, webinars, emails or other efforts to reach all participants are attempted; no one ever reaches them all.  Think about the third shifters, retirees, expats in very different time zones, remote office workers, and road warriors.  The net of this is that despite sincere efforts, many Participants either aren’t or can’t be easily accessible.  Our online solutions can help you connect with these Participants on their own terms.

The reason I mention this group when discussing liabilities, is I want you to think about who usually seeks legal recourse.  Is it the engaged employee who takes advantage of all that is offered, or the ignored?  Factually, it is usually the latter.  If they are in the subset that you either didn’t or couldn’t engage, studies indicate that many other service providers either didn’t or couldn’t reach them either.  These folks tire of what they perceive (and perception is reality) is second class citizen status, and are far more likely to sue than others.  They rationalize that had they gotten the help others received, this (whatever went wrong) never would have happened to them.  Just because this group is missed on the first, second and third cuts, doesn’t mean the Sponsor shouldn’t put even greater effort and resources into getting them engaged, to prevent future legal action.  It is always cheaper to proactively eliminate a risk than to address it after the fact!  Rather than doing the same thing again and again, in hopes of getting a different result (something Einstein defined as insanity), why not try something new? 

In closing, it is important to understand that two pending regulatory changes (and future market downturns) will exacerbate legal issues.   408(b)2 is effective 1/1/12, and greatly heightens cost visibility.  Sponsors must share cost information with all participants.  Time will tell impact, but lawsuits won’t decline when this is implemented.   The second issue relates to the definition of fiduciary.  The new definition will likely alter current 5-part test so that rendering of any one part trips the definition versus the need for all five.  The likely exposure to conduits may go up many fold.   Our solutions can lower potential exposure instead of allowing it to rise!  RJ20 can help!

To learn more about how you can shift future tort liability, while delivering to Participants what they most need and desire, schedule a 15 minute webinar with RJ20.  Just shoot me back an email and we’ll set it up.

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