Benefits & ERISA Law

Hecker, InsideCounsel and Defensive Plan Building

Hecker is the gift that keeps on giving, for either an academic or a blogger (or perhaps a blogger with an academic frame of mind). It presents a wealth of issues warranting further consideration, running from those commented on in my prior posts on the Seventh Circuit's decision, to one I haven't even passed on yet, namely the propriety from a jurisprudential perspective of using every trick in the trade, as the Seventh Circuit did, to go outside the complaint for extensive evidence that would allow the case to be decided on a motion to dismiss. It is fair to say that the circuit's heavy reliance on those maneuvers (and I don't criticize those tactics in general, as they are a litigator's stock in trade in presenting motions to dismiss and I am one of those who thinks that, used properly, they provide an opportunity to focus a court on issues that should be decided in a lawsuit at the earliest stage possible) renders the opinion more akin to a law review article that now has the force of law - at least in the Seventh Circuit - than the type of factually based analysis that we normally think of with regard to a binding judicial opinion.

But that's a topic for another day. What I wanted to pass along today was this excellent article - quoting yours truly extensively, although that's not what makes it excellent - in InsideCounsel magazine this month on the Hecker decision. It is a well written, interesting report on the case, but I wanted to focus on what I am quoted on at the closing of the article, in which the author writes:

"Hecker is almost a quintessential law and economics opinion. It assumes the 401(k) plan included funds that charged the same [fees] as the market as a whole, and that's all we need to know," Rosenberg says. "I would be surprised if many other courts are willing to just stop their analysis at that point."

Although Hecker provides a lot of protection for companies, he advises general counsel to assume the decision is just a baseline for ERISA compliance.

"Hecker didn't impose a very high standard," he says. "Far and below Hecker is going to get you in a lot of trouble in a lot of different jurisdictions."

The defense bar, of which 80% of the time I am one, is very pleased with the decision and thinks it protects and/or validates much of what plans have done when it comes to fees in 401(k) plans. I am not so sure, and I think that prospectively at least it warrants more vigilance from plan sponsors, not less. To my mind, everything follows economics, whether its fashion, car design, house sizes (think McMansions), the social propriety of using company jets and, yes indeed, legal regimes. I have little doubt that with the baby boomer generation looking at becoming the first cohort to both lack pensions and have battered 401(k)s, the economic impact will eventually increase the level of performance and fiduciary expertise demanded of plan sponsors and those they select to run their 401(k) plans. It might take one year, it might take ten years, and I don't know if it will come about by new regulation, statutory enaction or the development of case law, but it will happen.

Prospectively, as a result, plan sponsors and other fiduciaries can and should assume that, down the road, there will be much tougher looks taken at their 401(k) plans on issues such as fees than the very deferential approach taken by the Seventh Circuit in Hecker; when that comes to pass, they will have been much better off having understood Hecker as presenting only the base minimum standard for the plans they operated, and having targeted a much higher level of participant protection in building their plans than Hecker seemed to them, today, to have required. After all, if you think about it, what really is so hard about looking closely at fees as part of putting together a 401(k) plan's investment options from here forward, and documenting that this was undertaken, as an additional step in defensive lawyering and plan building, rather than just stopping at the Hecker level of analysis and conduct? It doesn't take all that much - there are independent fiduciaries out there right now who will try to do it for you - but the legal protection in the long run, and the participant goodwill in the short run, that it will buy far outweighs the costs.

Full post as published by Boston ERISA Law Blog on April 23, 2009 (boomark / email).