I prefer to educate rather than scare.
If you’re a plan sponsor, you’ve probably gotten a call from someone telling you something is wrong on your 5500 and you will get sued. No one likes getting that call and I wouldn’t either.
Unfortunately, many 401k plans have issues and if you are in violation of ERISA statute, you can be fined by the DOL and sued. Managing a 401k plan is not easy and sidestepping ERISA is even more difficult.
Getting help from a competent 401k advisor makes sense but I create content to help plan sponsors build awareness around what their responsibilities are, ideas to mitigate risk, and helpful tips to make your 401k plan something to be really proud of.
I read an article recently and want to share some key points. This news item is about a 401k plan sponsor that was sued for 2 reasons:
- Excessive fees were charged to the employees
- Employer did not properly monitor the plan investments
We don’t know if they are guilty or not but let’s use this as a learning example, shall we?
- I meet business owners and HR professionals that are either unaware or confused about their responsibilities as a fiduciary when offering a 401k to their employees.
- ERISA is federal law where your plan sponsor duties are stated.
- The Department of Labor ensure businesses are fulfilling their fiduciary duties.
My goal is to help you clearly understand what your fiduciary responsibility is and strategies to mitigate the risk to you and your company.
The company: Tenneco Inc.
What happened: plan participants brought a class action complaint against Tenneco’s retirement plan and fiduciaries of the DRiV 401(k) Retirement Savings Plan.
Note: They are suing both the company AND the fiduciaries. Under ERISA, they have that right. Who is a fiduciary? It could be you. It’s any employee making decisions for that plan.
The lawsuit alleges two counts of fiduciary breach:
- failure of the duty of prudence
- failure to monitor other fiduciaries
Fiduciary Breaches Alleged: According to the complaint, excessive fees allegedly were charged against participants’ in-plan investments for recordkeeping services, and the plan fiduciaries failed to operate the plan prudently by failing to take advantage of the plan’s size to reduce those fees.
The Relief Sought: The plaintiffs asked the court to repay the plan for all losses and lost profits and to appoint an independent fiduciary to run the plan, among other requests.
Whether they win or lose, the key question is…How would you feel if you were named in a class action lawsuit?
Are you 100% certain you’ve done everything correctly?
Doesn’t it make sense to review your plan today BEFORE this happens?
Disclosures, Sources, and Footnotes
This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.