I have long been inordinately fond of the Dickens’ line “It was the best of times, it was the worst of times.” It is applicable to many things at many times, and I have used it in briefs, slide decks, presentations, and conversations. But at this point in time, for plan sponsors and plan fiduciaries, as well as for corporate executives, in-house lawyers and others with financial, professional or legal responsibility for the operation of benefit plans – especially but not only 401(k) plans – it feels to me like the more accurate quote would be “It was the worst of times, it was the worst of times.”

And what makes this ironic is that you don’t have to go back too many years to find a time when taking on responsibility for pension or defined contribution plans in corporate life was something of a step up in rank and responsibility, and represented the climbing of another rung on the corporate ladder. In the early days of excessive fee class action litigation and the rise of fiduciary exposure that accompanied those developments, I wrote about how often targeted plans were run by appointed committees, which often did not include the CFO (for many, many reasons, including workload and the need to prioritize responsibilities) and instead typically included a younger, mid-level or above finance executive, for whom the role was a plum assignment that both increased internal visibility and simultaneously reflected it. Now though, I would say that the risks of personal liability as a fiduciary (or at least the need to ensure that, through corporate indemnification and insurance, that risk is only a paper risk and not a real one), the litigation environment, the expanding scope of potential bases for a lawsuit against a plan, and the substantial likelihood of ending up in the witness seat at a deposition – among other factors – have taken a lot of the sheen off such an assignment.

That change is mirrored on the corporate level itself, at the plan sponsor level. Providing employee benefits is a necessary task and – these days – risk; among many other things, doing it well is essential to any company that relies on a talented and motivated workforce to succeed (and every company today does, to one degree or another, even in the era of AI). But for plan sponsors, doing it well is becoming exponentially harder and riskier in myriad ways – and the pace of that change has ratcheted up dramatically in recent times, as class action lawyers have explored new theories of liability against a range of different types of benefits, regulatory guidance has opened up new worlds for plan sponsors and fiduciaries to master, and marketplace pressures on those who provide plans have only increased.

It has reached the point where I think it is time for a redefinition of the role of plan fiduciary and in how companies and individuals understand, as well as perform, this role. Historically, companies – as well as the lawyers and executives assigned to the tasks undertaken by a fiduciary – relied on (to reframe a tired metaphor) a multi-legged stool in performing this role, that consisted of conventional wisdom, the advice and recommendations of outside administrators and other contracted vendors, often excellent analysis of the latest legal developments provided by lawyers, the current state of regulatory guidance, and the comfort traditionally provided in all walks of life by insuring the risks.

Conversation after conversation with plan sponsors and fiduciaries, as well as with plan participants, has convinced me that this stool is wobbling, and that this approach just doesn’t work well anymore. Heck, as a litigator, I am not even sure that having relied on all of those traditional supports would be enough in a courtroom to convince anyone anymore that the plan sponsor and fiduciaries had acted prudently, which would not have been the case ten years ago. In fact, a decade or so ago I was using slide decks in presentations on fiduciary liability that pushed plan fiduciaries to increase both their use of these tools and the documentation of their use of these tools in operating plans, because in that era doing both was the best defense they could purchase against the possibility of being sued and, even more so, the risk of possible liability. That would not be enough now, and the new environment in which plan sponsors and fiduciaries have to thrive calls for a new approach.

Maybe we should call it Plan Sponsor and Fiduciary 2.0? I am open to suggestions on what to call it, but I am more interested at this point in time in sketching out what the new approach that should be taken by plan sponsors and plan fiduciaries should look like. In a new section of this blog, titled Plan Sponsor and Fiduciary 2.0, I plan to address various issues that plan sponsors and fiduciaries should consider in running their plans in the new world that we are moving into.

For starters, I wanted to address certain questions about vendor contracts entered into by plan sponsors and fiduciaries. For many years, reliance on well-qualified vendors was a good way of demonstrating reasonable fiduciary conduct if and when sued over the plan’s operations. However, as some plan vendors become more and more invested in pushing new changes to the operations of plans, as well as new investment options such as crypto and private equity, plan sponsors and fiduciaries need to be more careful than they have been in the past about the terms of their agreements with vendors.

Over the years, I have litigated a number of disputes, and negotiated resolutions of others, where a vendor’s contract with a plan sponsor or fiduciary did not provide the type of protection against errors by the vendor that the sponsor or fiduciary expected (or worse yet, assumed would be in the contract without having anyone confirm). Instead, when problems with the plan’s operations occurred, plan sponsors and fiduciaries would discover that various contractual terms limited both the amount of potential recovery and the level of performance – or poor performance, more accurately – that would be sufficient to trigger liability on the part of the vendor. Even worse, many plan sponsors discovered only after engaging litigation counsel that, horror of horrors and contrary to their assumptions, the vendor was not a fiduciary and had not, in fact, accepted delegation of fiduciary duties in the contract.

With more and more change and risk coming to plans and to those running them, particularly with regard to what the investment menu is going to begin to look like in many plans, plan sponsors and fiduciaries can no longer afford that approach, and have to end the blind eye they often used to take with regard to the details of their vendor contracts or the terms in those contracts. Not only that, but they should now have experienced counsel review the contracts before they are executed to make sure that, first, the plan sponsor or fiduciary’s understanding and expectation of the relationship are a match for the contract’s terms, and second, that there are no terms limiting damages or the performance obligations of the vendor in the event they err. As the current evolution of plans, and particularly of the financial exposures of fiduciaries, continues along (likely for the worse, in my view, when viewed from the perspective of the plan sponsor or fiduciary), the cost for not proactively taking this action will become much too high.