The Devil is in the Details: Failure to Provide Forms Can Be a Fiduciary Breach

I like this case, and these two stories about it here and here, for a number of reasons, not the least of which is their focus on operational competency in operating defined contribution plans and the fact that an occasional act of incompetence can be a pricey breach of fiduciary duty. The case is the story of a participant in a profit sharing plan who did not receive rollover forms in a timely manner, which was deemed a breach of fiduciary duty; perhaps of more import to plan sponsors and fiduciaries is the remedy, which was an award of the market losses in the account during the time the money sat, without being rolled over, while the plan participant waited for the necessary paperwork.

One of the reasons I like the case and the story is that it brings us back, in a world in which we spend a lot of time focused on and writing about major potential exposures like excessive fees and stock drops, to the more mundane day to day events that both impact participants and place fiduciaries at risk. It reminds us that it is the little things (although there was certainly nothing little about this case to the participant whose money was lost) that have to be done right in running a plan, or else fiduciaries and plan sponsors are placed at financial risk.

Another reason I like the case is that it is a perfect illustration of one of the mantras of this blog, which is that, in running a plan, an ounce of prevention is worth a pound of cure. Posts I have written along the way that emphasize this theme focus on the fact that investing time and money in perfecting compliance and operations pays off many times over in exposures that are avoided, in litigation costs that are never incurred, and in awards to participants that are never paid. This case is the touchstone of that idea. One relatively minor seeming operational failure cost the plan hundreds of thousands of dollars in damages and defense costs, all because of something that many would construe as nothing more than a minor oversight in compliance. For want of a horse my kingdom was lost; here, for want of some paperwork, hundreds of thousands of dollars were lost.