Welcome. You’re listening to the FinTrust Capital Advisors From The Desk Of Podcast: our podcast about markets, life, and things financial. Today’s podcast about retirement plans features Chip Hardy, FinTrust’s Senior Vice President, Fiduciary Consultant, with Mike Switzer of the South Carolina Business Review, heard each weekday morning at 7:50 AM on South Carolina’s Public Radio Network.

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Mike Switzer: Hello, and welcome to another edition of the South Carolina Business Review. This is Mike Switzer.

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Mike Switzer: Since 2018, there have been over 220 class action lawsuits suits filed against employers in connection with their retirement plans, and the top ten settlements in those suits for 2021 alone totaled $840,000,000. But our next guest says there is a new type of retirement plan that may limit employers’ risk of retirement plan-related litigation. Chip Hardy is a fiduciary consultant with FinTrust Capital Advisors. He joins us by phone from his office in Columbia, South Carolina. Chip, welcome to the program.

Chip Hardy: Thank you, Mike. Glad to be here.

Mike Switzer: Now, first of all, tell us about FinTrust.

Chip Hardy: Thank you. Well, FinTrust Capital Advisors is a boutique investment advisory firm servicing high net worth clients, foundations, endowments, municipalities, and then the topic we’re going to talk about today, corporate retirement plans, and collectively manage about $4.4 billion of assets under management, and we were recently acquired by United Community Bank, or UCBI, which has multiple branches in five states and about $25 billion in assets from a banking institute standpoint.

Mike Switzer: All right, so let’s jump into this topic then. Why are retirement plans being sued?

Chip Hardy: Well, fiduciary responsibility and corresponding liability has been a hot topic the last five or so years, and there’s a few plaintiff firms out there that think there’s a lot of money at stake when plan committees or plan sponsors are not acting in the best interest of their participants. So, they’ve been getting some scrutiny for investments and fiduciary decisions that has caused these lawsuits.

Mike Switzer: Well, give us a few examples of where that has actually been the case where these lawsuits have been justified.

Chip Hardy: If a fiduciary committee is not paying attention when their plan grows from a few million dollars to tens of millions of dollars, and they’re still using the original share classes of investments in their lineup for their participants, oftentimes they can get a price break or a tiering of their fees based on higher asset values. So, committees need to pay attention to that.

Mike Switzer: All right, well, now talk about this new type of retirement plan. Exactly what isn’t; what’s the name of this plan?

Chip Hardy: Sure, it’s called a Pooled Employer Plan, or PEP, for short. It came about with the SECURE Act that was passed in December of ‘19 and issued into law January 1 of ‘21. But they allow multiple unrelated employers to pool their resources from an asset and participant standpoint into one master plan and get the benefits of economies of scale. It’s been very well received so far.

Mike Switzer: Does this mean that there are companies out there that serve as the pooling agent, I guess?

Chip Hardy: That’s correct. It’s called the Pooled Plan Provider. They actually sponsor the plan, and then they hire the investment management firm to be a discretionary money manager across all participating employers. And they also hire a third-party administrator and record keeper to do the administrative work.

Mike Switzer: Okay, what are the qualifications for an employer to take a look at this?

Chip Hardy: Sponsor a retirement plan. It’s as simple as that. The law was passed to try to encourage small businesses who otherwise might not sponsor their own standalone single employer plan to pool into a larger group plan or association type thing to where they get the benefit of other people participating as well. We’ve seen some large employers with hundreds of employees participate in these, as well as small employers with only a few.

Mike Switzer: Walk us through then, what the reasoning would be for why these type of plans might face less potential litigation.

Chip Hardy: Because you have the participating employer are basically delegating all of your fiduciary responsibility to the pooled plan provider who is responsible for everything for the most part. So you do not have the fiduciary responsibility to monitor the investments because the pool plan provider does that for you. You do not have the responsibility to send out all the notices on a timely fashion because the third-party administrator is responsible for that. You don’t have individual audit requirements, well, the pooled plan provider gets one audit for the master trust.

Mike Switzer: Okay, so who are these pooled plan providers then? I’m guessing pretty big trustworthy companies.

Chip Hardy: They are. They can be the record keepers. Some of the national players have started sponsoring them. They can be compliance outfits that do nothing but support retirement plans. Third party administrators, anybody can do that if they have the competency, as you mentioned in the ERISA space. And there’s a little over 200 of these plans that have been established in the last year and a half. There’s not a tremendous market for these yet, but they are growing by leaps and bounds every day.

Mike Switzer: Well, Chip, thank you so much for spending time with us today and enlightening us on this topic.

Chip Hardy: Thank you, Mike. I appreciate the opportunity and hope it will help people retire safely.

Mike Switzer: Chip Hardy is a fiduciary consultant with FinTrust Capital Advisors, and he spoke to us by phone from his office in Columbia. Remember, you can hear the show again at our webpage southcarolinapublicradio.org, and you can find us wherever you find your podcast. With the South Carolina Business Review, this is Mike Switzer.

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South Carolina Public Radio Disclaimer: The views expressed on the South Carolina Business Review do not necessarily reflect those of South Carolina Public Radio.

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