Groom Law Group: Write Contracts Carefully

Abstract

Roberta Ufford, an attorney at Washington, D.C.-based Groom Law Group, who spoke at the breakout session, An Overview of 401(k) Litigation, said contracts must be written carefully to avoid lawsuits. She said the issue in most suits is who is a fiduciary. Recordkeepers are usually not considered fiduciaries, she said, unless they provide some other service besides basic administration. A contract that clearly separates the recordkeeper from the material decisions about plan investments is helpful, she said. For bundled providers the issue is even more salient because they often provide investment services as well.

If you want to be safe from lawsuits, write your contract carefully.

If you want to be safe from lawsuits, write your contract carefully. That was the message from Roberta Ufford, an attorney at Washington, D.C.-based Groom Law Group, who spoke at the breakout session "An Overview of 401(k) Litigation." She said the issue in most suits is, not surprisingly, who is a fiduciary. Recordkeepers are usually not considered fiduciaries, she said, unless they provide some other service besides basic administration. A contract that clearly separates the recordkeeper from the material decisions about plan investments is helpful, she said. For bundled providers the issue is even more salient because they often provide investment services as well.

Ufford used a few representative cases to illustrate the difference, and said the biggest reason recordkeepers get sued is that when an employer goes bankrupt the recordkeeper is the only defendant left. She added that the courts have been flexible in deciding what is "equitable compensation" in cases where suits have been allowed to proceed. While ERISA offers no punitive damages and in fact prohibits them, monetary damages have been offered to plaintiffs when there were investment losses that resulted directly from the action or inaction of a fiduciary. In these cases the money lost was considered equitable.