Mapping

[merciless]

We recently merged with another business and our 401k plan was transferred to a new broker. Without my knowledge, my monies which were self directed to a specific fund in the old plan were mapped to a dissimilar fund when the blackout period ended. Apparently the old fund was removed from the plan on the advice of the new broker and with the approval of the new business investment committee. The new fund has underperformed my old fund by 25% since the blackout period started a month ago. The company claims I should have received written notice by mail. Do I have a legal claim?

[WCC]

As to the investment performance, let's assume that the new broker is very comfortable in the 401k market. Therefore, they would have selected the new fund prudently with the involvement of the investment committee according to the investment policy statement. If the decision to add the new fund was a prudent choice, then in my opinion you have no claim (ignoring the dissimilar question for just a moment). Funds are not placed in 401k plans using one months worth of return data. Have you compared the returns for 3, 5 and 10 yrs? The prudence standard refers to long term performance, suitability for the entire group, fund structure, etc. The committee should have documentation as to why the fund line up was chosen along with historical data to show it was a prudent decision. If the fund under performs the benchmarks by 25% for the next year or so and the committee does not at least investigate the reasons for the under performance then you may possibly have a complaint.

Was the dissimilar fund a target date fund with a year attached (i.e. Example Fund 2040)?

[GMK]

The company claims I should have received written notice by mail.

If they mailed you the notice, see WCC's post, above.

[jpod]

It sounds like his/her real complaint is a failure to receive a black-out notice, and I believe there is a civil penalty which a participant may be able to collect if he goes to court, but failure to provide the notice does result in strict liability for losses incurred thereafter.

[austin3515]

I think it is something different. I believe Merciless was invested in a stable value fund. He was then default enrolled (after being sent a QDIA Notice, that is a notice describing how your money would be invested if you did not provide any NEW elections) into a target date fund.

Do you have a claim? Anyone can make any claim they want and many in your situation have. However, the courts have tended to provide deference to the DOL's endorsement of this precise arrangement. What was done to your account (assuming I guessed right) is not only permissible, but the DOL has ENCOURAGED it. Bottom line is there are a flurry of lawsuits over this very matter, and everyone I have seen has been in favor of the defendant (assuming they sent out the notices and can prove it).

Some peple might look at this say "ok good, so default enrolling into a target date must be the best way to go." I disagree. I think mapping into like funds will be much less likely to get you sued in the first place. Can anyone figure out then why the mutual fund companies prefer these transactions to result in a default investment of a target date fund that they manage? But as I said, the DOL wants it this way too.

[Bird]

merciless, if you did not get a blackout notice and/or a notice of the change in investments due to mapping, then you may have a claim. Unfortunately, you can't just go to someone and say "make me whole" - you'd probably have to go to court. How much $ is involved? It's probably not worth it. (Are you saying that you worked for a company, the company was bought out, you are working for the new company...and they didn't have a meeting to explain this? Either you are not telling the whole story, or they handled this very poorly.)

Austin, I agree with you. The whole point of self-direction is to let participants choose their investments, and indirectly their risk tolerance. Target funds might in fact be "better" in the long run but trying to force it through re-mapping is, as you say, more likely to get you sued. At the very least I'd want to make sure everyone understood very clearly. As far as why - I think there are some people with too much time on their hands who tend to overthink things.

[merciless]

Appreciate the input. I am a partner in a company that merged with another company. I had a significant amount of my 401k in an alternative investment fund. The new investment committee of the new company did away with my fund and mapped me into a different alternative investment fund. Out of a gold/silver miners fund which Ive been in for years and into a long/short equity fund. I ve already noted the underperformance of the new fund. I was sent a notice by mail from the company which was thrown away unopened as it came from a third party administrator that I was not aware had been hired, The losses from the underperformance are around 6 figures

[jpod]

On the assumption that none of those six figures are cents, and based on what you said in your last post, if I were you I would consult with a trial lawyer who has experience with ERISA fiduciary claims. I realize that you may have to balance the value of any claim you may have against your relationship with your new employers/partners (assuming you have that relationship with them), but it would be worthwhile to at least consult with someone experienced in that area of law rather than just forgetting about the matter.

[Kevin C]

I agree with Austin that it is more likely you were defaulted into the current investment, not mapped. The notice you threw away would have told you which it was. You might want to ask for another copy of the notice.

Default: The plan changes investment options and notifies everyone that they have to select new investments from the new menu. Those who do not make an election from among the new investment options are defaulted into the new qualified default investment alternative (QDIA) described in the QDIA notice sent to the participants. If this is what happened and they followed the DOL's QDIA regulations, you'll have an uphill battle trying fight it. Here is a page on the DOL website dealing with QDIAs.

http://www.dol.gov/ebsa/newsroom/fsQDIA.html

Mapping: The plan changes investment options and a plan fiduciary decides that balances in fund A get moved to fund J, balances in fund B gets moved to fund K, etc. I would expect notices to be sent to the participants, too. Since the decision of which fund maps (is moved to) which fund is a fiduciary decision, your statement that your funds were moved from a gold/silver mining fund into a long/short stock fund makes me think your funds were not mapped. The bigger the differences between the old funds and the new one, the more potential liability the fiduciary has for the mapping decision.

[GMK]

Side comments:

1. You could ask the 401(k) to add your mining fund to their list. We know that some 401(k)'s avoid such funds, but it's worth asking.

2. Open the junk mail that you do not recognize, just to check. Once a year or so, I get the surprise that it is something useful or important to me. This doesn't help with the current problem, but it may avoid a future one.

[austin3515]

Kevin C, I don't know, he's saying that the original fund was a precious metal fund, so I could see where even mapping would put him into a dissimilar fund.

Merciless, we'd all love to know what that notice says!

[merciless]

It was definitely mapping. The investment committee tells me they were told by the investment advisor we would be put in similar funds so they didn t give it a second thought.

[Belgarath]

As a non-lawyer, my thoughts on this are certainly little more than random musings. But FWIW, it seems to me that the fact the new fund, whatever it may be, underperformed the old fund, may be immaterial. By that I mean that the plan investment committee which selected the investments is under no obligation to continue to offer that same fund. So if your "old" fund earned 25%, or 200%, or whatever, in one month since the transfer, that's meaningless IMHO. If the selection of the new fund was undertaken in a prudent manner, as suggested earlier, then I'm not sure you really have a lot on your side. The fact that you threw away the notice probably doesn't help your cause.

Just out of curiosity, if you HAD opened the notice, and seen the available fund lineup from which to choose, what fund would you have chosen? What would this fund have earned in the 1 month period, compared to the default fund into which your account was placed? If you DO have a solid case (and again, as a non-lawyer based only upon some sketchy facts and discussion, I feel like that may be doubtful) I think this may be a more appropriate measure than comparing it to the old fund which would have been unavailable to you in any case.

[jpod]

Whether it was mapping or a default, it was a fiduciary act by some fiduciary to put his money in that fund (and from the description it sounds like it may not be a QDIA). He says he lost $100,000 or more; I think it's worth a look.

[Kevin C]

Kevin C, I don't know, he's saying that the original fund was a precious metal fund, so I could see where even mapping would put him into a dissimilar fund.

If one or more of the old funds being used doesn't have a similar fund in the new line up, why would a rational fiduciary map funds?

It was definitely mapping. The investment committee tells me they were told by the investment advisor we would be put in similar funds so they didn t give it a second thought.

So, the investment advisor decided how the mapping was done?

[Bird]

There are a lot of complications to this one and we're never going to be able to give a direct answer. Lots of good points have been made above, like:

• plans don't have to offer a precious metals fund
• the issue is what would the "preferred" fund in the lineup have returned compared to the actual fund that the money was mapped to? (But since the OP has acknowledged receiving the notice, any "case" pretty much falls apart right there...s/he had the opportunity to select a fund and didn't.)

Another thing - liability, if there is any, will hinge on the exact role of the "investment advisor." If it's a broker, paid a commission, then there isn't, or shouldn't be, fiduciary liability for that role. If it's a Registered Investment Advisor, then there should be fiduciary liability for that role. (Setting aside the point above that the participant apparently did receive proper notification, as least as that would be defined legally.)

It sounds like it was mishandled and very, very poorly communicated. It's astounding that the investment advisor and/or trustee/investment committee would ignore the fact that a partner in the merging company had such a large position in a fund that couldn't be replicated and didn't take some extra time to make that perfectly clear.

[Lou S.]

Appreciate the input. I am a partner in a company that merged with another company. I had a significant amount of my 401k in an alternative investment fund. The new investment committee of the new company did away with my fund and mapped me into a different alternative investment fund. Out of a gold/silver miners fund which Ive been in for years and into a long/short equity fund. I ve already noted the underperformance of the new fund. I was sent a notice by mail from the company which was thrown away unopened as it came from a third party administrator that I was not aware had been hired, The losses from the underperformance are around 6 figures

The Bold is probably not going to help your claim.

As others have said though you may or may not have a claim. If you believe you do, talk to a trail attorney with ERISA experience.

[mbozek]

I agree with Belgarath. Merciless was given the required notice and ignored it by his own act so there is no claim for not being informed of the change of his investment choice. While the investment was changed from one investment sector to a different sector there is no requirement that the fiduciaries must map each investment option in the old plan to a similar investment choice in the new plan. Participant could have elected out of long/short fund as soon as blackout period ended but failed to do so even though he received notice of change in fund investments. Given the limited fact presented its my opinion that in order to prevail merciless would have to demonstrate that over/under fund was an imprudent investment choice under plans IPS. However he may be considered to be a sophisticated investor since he was investing in an alternative fund that invested in gold and silver mining co which is a risky business.

[Bill Presson]

I'm not an attorney. But given the facts that you were a partner and you admit that you threw away the notice, I would toss your claim as fast as I could. And I would make you pay everyone's costs just for being a pain.

[austin3515]

Whether it was mapping or a default, it was a fiduciary act by some fiduciary to put his money in that fund (and from the description it sounds like it may not be a QDIA). He says he lost $100,000 or more; I think it's worth a look.

All of you are referring to chances of success. But jpod's comment here is why this could easily make it to a trial. If this were a QDIA notice that was thrown in the trash, I still think someone would get sued (let's face, it someone always sues after a 6 figure loss that was based on someone else's decision as a general rule). So in this case, the case is even more compelling. I have seen QDIA lawsuits as I mentioned that always find for defendant, but this should be a better case for the plaintiffs than that.

[mbozek]

Austin:

Why do you think the participant would sue because loss is 6 figures?

ERISA claims are tried as equity cases - there is no jury trial. Case is decided by a judge who is well versed in the law.

Since the participant admits that he did not read the notice he was sent that would have informed him of his right to transfer out of the new investment fund judge could decide the case on motion for summary judgment for the plan fids because the participant could have prevented the loss.

Also court could award legal fees to the plan fids / sponsor to be paid by the participant.

In the Deere case, the plan participant who sued the deere 401k plan because the plan did not offer low cost institutional index fees was ordered to pay legal fees to the plan. Court ruled that the 22 core fidelity funds with fees of 1% or less were reasonable fees.

[austin3515]

Why do you think the participant would sue because loss is 6 figures?

I'm sorry, was this a sarcastic statement? In case it was not, my answer is simple: There is enough money in a potential settlement for the attorneys to get paid. And the loss was a direct consequence of someone else's decision.

Since the participant admits that he did not read the notice he was sent that would have informed him of his right to transfer out of the new investment fund judge could decide the case on motion for summary judgment for the plan fids because the participant could have prevented the loss.

But even if he had read the notice he would have reasonably assumed that a good faith effort was made to map his investment to a like fund...

Also court could award legal fees to the plan fids / sponsor to be paid by the participant.

The threshold on this is quite high though. If it wasn't it would be too much of a deterrent from participants defending their interests. Mind you, he's not alleging that he was invested in Fund A for 10 years, the market went sour, and now Fund A lost him 6 figures and that is the basis of his claim. And Fund A to boot is rated with 5 stars, and btw, the S&P 500 went down proportionately. That's when I could see an issue with the plaintiff paying defendants fees. Simply finding the for the defendant is not even close to having plaintiff pay defendants fees.

[Kevin C]

We don't map funds with takeover plans, so I've never worked through the issues involved.

For those that map, is there any particular guidance you've found that says notifying a participant of how the funds will be mapped, even if mapped to unlike funds, means a participant who lets the mapping take place is considered to exercise control over the investments in his account? Or, is there some other reason you think there is no fiduciary liability if the funds are mapped?

I found something today that makes me question whether any fiduciary relief would apply in the OP's situation even if a notice was provided. Footnote 1 of Rev. Ruling 2000-8 says:

Footnotes

1The Department of Labor has advised Treasury and the Service that, under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries of a plan must ensure that the plan is administered prudently and solely in the interest of plan participants and beneficiaries. While ERISA §404© may serve to relieve certain fiduciaries from liability when participants or beneficiaries exercise control over the assets in their individual accounts, the Department of Labor has taken the position that a participant or beneficiary will not be considered to have exercised control when the participant or beneficiary is merely apprised of investments that will be made on his or her behalf in the absence of instructions to the contrary. See 29 CFR §2550.404c-1 and 57 F.R. 46924.

The same language is in the preamble to the proposed QDIA regulations, but it adds a discussion that using a QDIA in compliance with the regulations is an exception.

[GMK]

But even if he had read the notice he would have reasonably assumed that a good faith effort was made to map his investment to a like fund...

Not so. If he had read the notice, there would be no assuming. He would have known what was happening with his fund and what options he had.

But (and with apologies for being grumpy) if we must find some else to blame, why not his fellow partners for not holding his hand through the changes, or the USPS for allowing too much junk mail, or maybe society.

[austin3515]

Not so. If he had read the notice, there would be no assuming. He would have known what was happening with his fund and what options he had.

I disagree. If the fiduciaries hired an investment professional to map the funds to like funds, and the notice says "your fund has been mapped to a fund with similar objectives and characteristics" the onus is not on the participant to determine that it was a true statement. The participant may assume that the statement is true. I'm not saying that he did the right thing by throwing out the letter (although it would be easy to blame this on sending it out in the service providers envelope), only that it is immaterial because it is reasonable to assume that he would not have acted any differently if he had read the notice. I'm not lawyer but I've read these types of arguments before.

[MoJo]

"and the notice says "your fund has been mapped to a fund with similar objectives and characteristics"

You know, I've read this entire thread, and I see NOWHERE where the contents of the notice are spelled out. The OP says the HR people said (which is already a two step leap in the "telephone game") that funds were mapped into like funds. Not what I would bank on in any way shape of form. Let me see the notice. Let me see emails - or other documentation of conversations. Far too often those answering the questions aren't the ones who are making the decisions or are the real fiduciaries of the plan.

1) ONLY through the actual content of the notice can any determinations be made as to what it contains, and whether or not it was appropriate. I've seen (and have written) such notices that spell out that an attempt was made to move funds into like-investments, but where there is no like investment offered, those funds will be mapped to the XYZ fund, or a balanced fund, or a default fund, or a conservative fund, or ... or ... or .... It really is IRRELEVANT. If the notice said this precious metal fund WAS GOING AWAY (a VERY prudent decision, in my humble opinion) and the money invested in it would be invested in the "XYZ" fund, then so be it. Notice given. Prudence is the standard. The burden falls on the plaintiff, and HE THREW THE NOTICE AWAY.

2) As has been pointed out - the relative performances of the two funds is also IRRELEVANT. The decision is a "fiduciary" one, and the standard is "prudence.' Precious metal funds are very volatile (both up, and back down). Timing here may have sucked - but that isn't a criteria of "prudence." The advisors I work with NEVER would recommend inclusion of a precious metal fund, and where one exists, the contracts CLEARLY lay out (I wrote the language) that the advisor assumes NO RESPONSIBILITY, fiduciary or otherwise) for that fund. Too much risk. No reward for the fiduciary.

3) It is also IRRELEVANT whether he would have acted differently had he read the notice. The notice just provides information. Had he read the notice and done NOTHING, he would have assumed the risk of what the new fund's performance was (assuming the notice was appropriate and complied with 404© standards - and if it didn't, that's a different story from the one we've gotten so far). It would be no different if he had gotten a notice that announce a totally new fund in the line up, but did nothing to invest in it. If it became the plan's best performing fund - could he then sue the fiduciaries because he didn't invest in it,and his investments didn't perform as well? NOT! The notice is there to make the decision the participant's. Read it. Don't read it. As long as you got it (and it was correct), the risk is the participant's - not the plan fiduciaries.

4) I agree with everything that's been said about how the courts would approach this matter. The amount of the loss is IRRELEVANT. The only questions are 1) was the decision "prudent" (considering there is NOTHING that requires the plan sponsor to continue to offer a participant's favorite fund - or any fund for that matter (I have clients that still totally direct ALL plan assets (and they are doing quite well, I might add)); and 2) did the participant receive sufficient notice (and he's admitted to receipt - the only question would be one of sufficiency) such that the burden shifts.

To the OP: 1) READ what you get (and as other's have pointed out, don't assume the "unknown" is "junk"); and 2) get engaged in what's happening AT YOUR COMPANY (you said you were a "partner" - at least in the old company that sold/merged with the new company. As a partner - you may actually have some fiduciary liability yourself....

[mbozek]

Plans change investment options and eliminate existing options all the time without incurring fiduciary liability because some participants investments are transferred to a different category. participant investment in an alternative fund X can always be moved to another class of fund for many reasons such as excessive cost, low participation rate, lack of similar investment in new providers. No brainer. There is no fiduciary breach because some fund options are eliminated.

When a plan remaps participants funds to new lineup participants are supposed to perform due diligence to determine if the new fund is suitable for their investment goals. While the new investment option is supposed to be a prudent option the courts have said on many occasions that prudence does not require that fiduciaries be prescient in selecting investment choices. The fact that an investment option declines in FMV after being added to a plan is not indicative that the choice was imprudent under ERISA. On Black Monday in October 1987 the Dow industrials declined over 22% on one day. Only one ERISA lawsuit because of a decline in value was brought by a lawyer ( of course) against the insurer who sponsored the ABA prototype profit sharing plan that his law firm had adopted. Lawyer had rolled over his IRA to the plan and invested it in a 60/40 balanced fund in Sept 87 that declined in value due to the Oct 87 blow out. Lawyer claimed the balanced fund was imprudent investment and introduced expert testimony of a financial advisor who said balance funds were not suitable for a retirement plan. Court dismissed the complaint on the grounds that experts opinion was not material because the Oct. 87 crash was a systemic failure of the equity markets. Court said proper standard was whether the balanced fund in the ABA plan substantially under performed other 60/40 balanced funds. If I can locate the case I will cite it.

those who think that a claim of 100k would be interest to an attorney have never done a litigation analysis. 100k claim could easily be reduced by a judge to 25k or dismissed by summary judgment. Attorneys in cases where participants prevail usually have legal fees paid by plan sponsor under ERISA provision for payment of legal fees at an hourly rate called a lodestar rate which is an average fee charged in the district. Lodestar rate is less than prevailing rate for attorneys.

[Bill Presson]

We don't map either for our in house plans. We require all employees to make new elections. If they don't make new elections, they go into the default fund selected by our investment committee.

This all reminds me of an employee meeting last fall. I was just sitting in to answer some technical plan questions and the investment people were speaking. One of the participants said "what I want you to do is choose an investment for me and if it goes up, keep it. If it goes down, sell it before that happens."

[ESOP Guy]

This all reminds me of an employee meeting last fall. I was just sitting in to answer some technical plan questions and the investment people were speaking. One of the participants said "what I want you to do is choose an investment for me and if it goes up, keep it. If it goes down, sell it before that happens."

Your story reminds of a time many years ago I got a call from a client saying one of their employees is saying his 401(k) account is missing $1,500. Thinking wow did we make some kind of mistake I said I would look into it. I looked at what the client had sent in as saying the person deferred and what we had show on his statement-- they matched. I looked over the trust accounting nothing like a receivable for some amount that needed to still be deposited.

So I called the client back. The client talked the employee to ask why he thought he was missing $1,500. Well it turned out last quarter his account had made around $3,500 in earnings and this quarter it only made $2,000. So where was the other $1,500? And no it wasn't in the stable value fund.

Back to the original question. Based on all that has been said I agree with the people who say you will have a very hard time getting your claim paid. I don't see any decision that is actionable on the part of the people in the decision making roles of the plan.