This is an interesting small piece out of Reish and Reicher highlighting the fact that smaller plans, with relatively small asset pools, face many of the same risks and problems that are faced by the large plan sponsors involved in the bold face cases that show up on a daily basis in the media. To my mind, the key point is, as I have said often, one of compliance. For smaller companies in particular, an obsessive focus on compliance is needed to avoid getting sucked into these types of lawsuits. For the very largest plans, that alone won’t keep them out of the litigation cross hairs; they are simply too big of targets, and too subject – like BP – to external events that can put their fiduciaries on the wrong side of a complaint’s caption. For smaller companies, though, it is the internally controlled events, like compliance lapses, that are likely, in my experience, to trigger fiduciary or other ERISA litigation, and that is something those companies can control.
The article, incidentally, came to my attention through a Linked In group I participate in, and its only fair to note investment advisor Chris Tobe for bringing it to my attention. My comments on Linked In about the article expanded upon my thoughts above a little bit, and to the extent you are interested, were that:
The Reish article is right on point. I have represented smaller plans and their sponsors in similar cases, and relative to the size of the employer, they are every bit as disruptive, expensive and of concern as large cases against larger plans. For the smaller plans in particular, who really cannot afford the distraction from their business of these types of claims, an emphasis on compliance to avoid these types of suits is crucial. Of even more import is a willingness to work cooperatively with a participant who has a legitimate complaint to resolve the matter without litigation; I have done this, and it can save a small fortune in legal fees while ending up with a settlement similar to one that would be on the table at the end of litigation. Finally on this point, I would note one concern with regard to fiduciary liability insurance for these "small plan" claims. Many such policies have a high deductible, meaning that relatively small dollar claims in relatively small plans may not end up covered by the insurance at all or at least not to a significant extent. Small plans should keep in mind when acquiring the coverage that a low deductible is necessary to capture the typical size claim that a small plan will generate.