Confero Spring 2013: Issue 2 | Page 7

RES IPSA LOQUITUR “the thing itself speaks” ETHICAL CONSIDERATIONS I By Gabriel Potter and Diana K. Powell, Esq. t is important to recognize that the principles of fiduciary responsibility originate from ethical guidelines as well as legal outcomes. The responsibilities to fiduciaries both ethically and legally undergo constant refinement. Many of the significant modifications are due to judicial verdicts handed down by the courts. Fiduciaries and their advisors should make it a part of their process to stay informed about challenges to fiduciary duty, so they may appreciate their legal obligations. The Case: Bidwell vs. University Medical Center A recent case, Bidwell vs. University Medical Center, details the obligations of disclosure on investment lineups, particularly qualified default investment alternatives (QDIAs) for defined contribution plans. Here’s what happened: The University Medical Center selected a conservative stable value fund to be their default fund. If plan participants did not make any choices for their retirement plan, they were defaulted into the stable value option. However, participants could also choose to actively invest their assets into the same stable value fund. This is what appears to have started the confusion. At some point, University Medical Center changed their default fund and elected the safe harbor provisions under a QDIA. The plan chose to transfer all of the assets of the original default (the stable value fund) to the new QDIA (in this case, a life cycle fund). Moving the assets may have been explicitly allowed for those participants that were swept into the plan’s orginal default fund, but not with regard to those participants who specifically elected to invest their assets in the stable value fund. Those participants found their assets moved to the new QDIA—the life cycle fund—contrary to those participants’ intentional investment choice. University Medical Center mailed a single notice to participants to inform them about the change. The plaintiffs charged that this single notice was insufficient and, therefore, a breach in fiduciary duty. They argued that University Medical Center had to prove actual receipt of the mailed notices; indeed, many plaintiffs claimed never to have received the notice. The Verdict The US District Court ruled in favor of the defendants, including University Medical Center and noted that neither the defendants, nor the recordkeeper were liable for a breach of fiduciary duty. Recommendations for Plan Sponsors There are two key takeaways for a plan sponsor from this case: First, the legal challenge might have been weaker if the client had made a greater effort to contact the plan’s participants. Although the defendants ultimately prevailed, the original cost in all probability would have been minimal had a more elaborate notification procedure been taken by Un