Who’s neck is it, anyway?

If you are a Trustee to your company’s 401K plan (Trustee’s of 401K Plans are often times the business owners, members of the board of directors, or 401(k) committee members), you are a fiduciary for the plan. As a fiduciary, you are held to heightened standards and duties to the plan. Failure to adhere to those fiduciary obligations may have significant ramifications. These ramifications have been made all too real by a number of recent public legal actions involving retirement plans and fiduciary duties:

  • ABB and Fidelity ordered to pay $35.2 million for failing to monitor fees, failing to negotiate rebates to offset plan costs, and replacing investments with options that generated greater revenue sharing for the trust company.
  • Walmart and Merrill Lynch agreed to a $13.5 million settlement for fiduciary breaches and choosing investments with excessive fees.
  • The Hartford Life Insurance Co. agreed to a $13.8 million settlement and several changes to its business practices.
  • Kraft Foods settled a lawsuit alleging it used investments with excessive costs for $9.5 million.
  • General Dynamics settled a lawsuit over excessive fees and other fiduciary breaches for $15.1 million.
  • And the list goes on…

So how do you limit your exposure to these liabilities?

  • Know who has fiduciary responsibility and make sure these responsibilities are agreed to in writing.
  • Develop proper processes for complying with regulations, follow these processes, and document everything!
  • Obtain Fiduciary Liability insurance.
  • Transfer some of the liability by delegating responsibility to third parties such as an ERISA 3(38) Investment Manager . Just remember it is still the fiduciaries’ responsibility to select, monitor, and replace the third party if necessary.
  • Excessive fees and/or failing to monitor costs are a common theme among lawsuits. Know your plans “all in” costs and benchmark the plan to make sure these costs are reasonable compared to the services provided. Check out our Quick Benchmarking Tool to see how your plan compares.