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Legal Fees Reasonable for Inquiry into Plan's Performance / Practices


Guest MAWalsh
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Guest MAWalsh

Would a $45,000 legal expense to fund an inquiry into a plan's performance and practices -- whether all transfers, etc. were signed by the appropriate number of board members -- be a reasonable expense?

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It depends on what was done- Lawyers charge by the hour- the more hours by more lawyers the greater the fees. Was there a written retainer agreement which defined the terms of the inquiry and how the lawyers were to be compensated? If so then the client will pay according to the terms of the agreement. Or did the lawyers just do the work and submit a bill to the plan without any supervison of the scope of their review by the plan??? I also dont understand what was the lawyers role in reviewing the plan's permformance- normally an investment advisor would be retained to review performance. The real question is did the plan know what it was getting into when it retained the lawyers. By the way what's your intereest in this fee?

mjb

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I guess it would depend on the type and size of the plan. We have retained a large consulting outfit to conduct mock DOL audits to ensure plans are compliant. Typically our plans have approx. 500-1000 participants and the fees (for very comprehensive onsite work and a follow up report) have been $12,000-$15,000.

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Guest MAWalsh

$20,000 retainer with a cap of $45,000 for the entire investigation. Basically, some members of the retirement board are unhappy with past performance so they fired all the investment managers, moved all the money and haved launched an investigation to try to "recover" some of the losses. They are paying for this with pension fund money. The question has been asked whether this is a reasonable use of plan funds under the "prudent man" rule. I'm looking for opinions.

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There is some delicious irony is all this but your client needs an independent legal opinion to determine if this expenditure is a prudent use of plan assets under state law as well as the terms of the plan. Many states have begun investigations and commenced lawsuits against corporations or investment mgrs for poor advice (e.g., the Fla retirement system is suing Alliance Capital for investing $300 million of the Fla plan assets into enron stock over a 2 yr period as it fell into bkcy finally selling out about a week befor it went under) to recover damages. NJ is suing 4 corporations for misleading NJ pension funds into investing in the cos. But these suits are being brought by the State Atty general, not the plans. What is the basis for the recovery action? If the mgrs acted in accordance with the investment instructions provided by the plan fids there is no liability just because the investments declined in value. Against what benchmarks are they basing their opinion of poor permfromance?. Asslo the board will have to hire investment advisors to review the investment decisions- who will pay for that cost? I think this a case where the board is trying a cya maneuver.

mjb

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