Seriously? Yale Law Professor Sends Letters to Plan Sponsors Alleging Potential Fiduciary Breach

In an article published this morning on napa-net.org by Brian Graff, CEO/Executive Director of ASPPA and NAPA, the retirement industry has learned that a Yale law professor is sending out letters to plan sponsors claiming that he has identified their sponsored retirement plan as a “potential high-cost plan.” In response, a plan sponsor is supposed to (a) contact Ayres if they have questions or (b) go to brightscope.com and search for their plan.

In the redacted example letter posted by napa-net, Ayres claims that the plan ranks 34,367 out of 46,875 plans in the brightscope database analyzing 5500 data from 2009.

The professor, Ian Ayres, and colleague Quinn Curtis, also claim to be publishing a study in the spring of 2014 about the “financial impact of investment and administrative fees in retirement plans.”  A draft of that study is available on Ayres’ website.

Graff is, unsurprisingly, highly critical of Ayres’ letter writing campaign, calling the tone of the letters “shocking.” His list of criticisms include:

  • The data is old — 2009 Form 5500 data — and insufficient to make any meaningful relative comparisons.
  • The data is incomplete since it ignores fees paid directly by the plan sponsors, thus not allowing for a complete assessment of the reasonableness of aggregate fees.
  • The data does not take into account the relative complexity of the plan design.
  • The data does not factor in levels of service or relative performance, including whether a professional plan advisor is helping the plan sponsor and participants.

We at FRA PlanTools have reviewed the draft study as well as another version of the letter being sent to plan sponsors. This letter doesn’t offer a ranking of the plan, but instead after claiming the plan is a potential high-cost plan, apparently offers unsolicited legal advice:

  • “As a 401(k) plan administrator, you have a fiduciary duty to plan participants. Fiduciary duties are the most stringent imposed by the law, and require administrator to act solely in the interests of plan participants. Plaintiffs have won substantial settlements, for example in Braden v. WalMart Stores (2009), by claiming that plans imposed excessive costs. Menus that don’t allow for sufficient diversification can also give rise to liability for the plan sponsor. To best comply with your duties to plan investors, I recommend that you improve your plan offerings, including adding lower-fee options, both at the plan and fund-level, and consider eliminating high-fee funds that do not meaningfully contribute to investor diversification.”

Additionally interesting to us is that in the letter posted to napa-net, Ayres claims to be comparing the targeted plan against a universe of 46,875 plans, where as in his draft study, he has limited the universe to just 3,552 due to the difficulty of comparing plan costs. Another unexplained inconsistency is that the draft study claims that brightscope only has 12,475 plans with an end date of December 31, 2009, but again, the letters being sent claim a universe of 46,875. 

Also unexplained is, if they already have their draft study and a universe of plans to draw their assumptions from (3,552 plans), what is the motive of these professors and brightscope in sending these letters? What’s the next step by a plan sponsor that helps the professors with the draft study? What’s the next step by a plan sponsor that helps brightscope?

Finally, let me provide a brief  insight into my previous life as an ERISA litigator on behalf of plan participants. I spent considerable amounts of time analyzing Form 5500 data in support of potential and actual litigation. This has led to me being asked to speak at the CFDD conference on the topic in October and previous blog posts on the subject. I can say with a 100% guarantee that we never threatened fiduciary breaches or filed litigation alleging the same with only data from Form 5500s. Especially using data that is currently 4 years old and will be 5 years old at the time these plan sponsors will allegedly be “out-ed” on Twitter and in the New York Times.

The response of the industry to these letters and study will be interesting, to say the least.

3 thoughts on “Seriously? Yale Law Professor Sends Letters to Plan Sponsors Alleging Potential Fiduciary Breach”

  1. Has anyone discovered if there is a relationship (financial or otherwise) between the professor and Brightscope?

  2. Is this a Yale Law School sanctioned witch hunt? The aforementioned letters are on Yale Law School letterhead.

  3. Brightscope was not involved with the letters. He used their information – they have distanced themselves from the professors for the same reasons stated in the article.

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