James Watkins, an attorney and CEO of Atlanta-based InvestSense LLC, which provides fiduciary oversight to retirement plan sponsors and trusts, said the potential liability for plans sponsors who offer PE funds is stark.
“All the 401(k) and 403(b) actions/settlements prove that far too many plan sponsors cannot even select cost-efficient and otherwise prudent funds for their plans. So now DOL says they can include private equity?” said Watkins, a former broker-dealer compliance director.
In Watkins’s own city of Atlanta, Emory University just settled an ERISA class action lawsuit for $17 million earlier this week. The suit accused the university of breaching its duties of loyalty and prudence under ERISA by causing plan participants to pay excessive fees for both administrative and investment services in the plan. Emory denied it committed any fiduciary breach in its operation of the plan.
With 401(k) and 403(b) actions and settlements already rising sharply because of excessive fees and imprudent investment selection, Watkins said he is warning sponsor clients that including private equity in retirement plans will make them vulnerable to litigation.
But Watkins also said his phone rings fairly constantly with calls from plan sponsors who are interested in including PE funds in their plans.