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