In the complex landscape of retirement plan management, fiduciaries face numerous challenges, including maintaining the integrity of their decisions against potential conflicts of interest. The recent legal case involving UnitedHealth Group is a critical reminder of the pitfalls of "bundling" services across different business operations.
From health and welfare brokers purchasing retirement plan fiduciary firms to banking institutions providing recordkeeping services and investment products, the opportunity for developing perceived breaches is on the rise. This blog explores how intertwining services with existing business relationships can create appearances of conflict, therefore potentially jeopardizing fiduciary duties mandated under the Employee Retirement Income Security Act (ERISA).
The UnitedHealth Case: A Cautionary Tale
The case of Kim Snyder et al. v. UnitedHealth Group, Inc. sheds light on the significant risks involved when retirement plan fiduciaries do not strictly segregate their investment management decisions from other corporate business interests. In this lawsuit, UnitedHealth was accused of keeping underperforming investments in their 401(k) plan, specifically Wells Fargo funds, over an extended period. This decision was allegedly influenced by UnitedHealth’s broader business relationships with Wells Fargo, highlighting a potential conflict of interest.
Central to the lawsuit is the claim that UnitedHealth retained these underperforming funds for over a decade, despite clear signs that these investments were not meeting the plan’s needs. Plaintiffs allege that the committee utilized outside business considerations in selecting funds that were in UHG’s best interests, not those of participants. Specifically, Wells Fargo uses UnitedHealth as their health insurance provider, and UnitedHealthcare is the largest investor in the Wells Fargo suite of target-date funds. This retention raised questions about the prudence and loyalty of UnitedHealth’s fiduciaries and emphasized the complexities of managing a retirement plan within a multifaceted corporate structure.
Understanding and Managing Conflicts of Interest
As fiduciaries to retirement plans, the UnitedHealth case underscores the necessity of vigilance and thoroughness in selecting service providers. When services such as consultancy, recordkeeping, or investment management are "bundled" with providers with whom the company has other business dealings, the risks of perceived or actual conflicts of interest increase dramatically.
Here are a few steps to consider to help mitigate these risks:
Conduct Independent Reviews: Regularly review the performance of service providers that are independent of any other business relationships the company might have with them.
Document Decision Processes: Maintain detailed records of how decisions were made, including why particular service providers were chosen, to demonstrate prudence and loyalty to plan participants.
Seek External Advice: When in doubt, consult with independent third parties to evaluate the suitability of potential investment options and service providers.
Establish Clear Policies: Develop and enforce policies that explicitly address conflicts of interest in managing retirement plans.
Navigating the fiduciary responsibilities of managing a retirement plan requires a careful balance of expertise, diligence, and integrity. The pitfalls of "bundling" services with other business activities can lead to perceptions of conflict that compromise the trust placed in fiduciaries by plan participants. Developing a deep understanding of ERISA’s prudence requirements and isolating retirement plan fiduciary decisions from other organizational decisions is the best way to reduce the impression of perceived fiduciary breaches.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.