Home > Property & Casualty > Fiduciary standards tighten amid 401(k) plan lawsuits

Fiduciary standards tighten amid 401(k) plan lawsuits

In one of the first 401(k) fee cases to go to trial, a St. Louis appellate court ruled against a power and technology company for violating its fiduciary duties to 401(k) plan participants. According to the case, the company failed to control plan costs and negotiate rebate terms with investment firms, costing employees millions of dollars in hidden plan fees. The Court awarded over $13 million to the company’s employees- a sign to plan sponsors that their role extends beyond simply offering low-cost investment options.

Experts note the growing frequency of retirement plan cases, as more judges develop fiduciary standards and laws for plan sponsors to protect retirees. In a similar case, employees of a military contracting firm lost hundreds of millions of dollars after company officials neglected to manage plan investment fees being charged by the bank sponsoring its 401(k) plan. Court documents reveal the bank collected additional fees for managing a single-stock portfolio for the company, directing cash from the fund into its own investments and using that cash to paying itself for managing the fund.

Despite high litigation costs, court battles against 401(k) plan sponsors can save participants millions of dollars, as well as expose plan sponsors who engage in corrupt management. In addition, the U.S. Department of Labor has recently taken action against several plan-sponsors and implemented fee disclosure rules to help reduce costs for participants and retirees.

Employers must ensure they are properly monitoring employees’ retirement accounts. Furthermore, they are responsible for conducting regular plan reviews, as well as and tracking plan costs and looking out for hidden service fees that can be passed on to participants without their knowing.

About the Author

Jennifer Sharkey is a Senior Vice President at William Gallagher Associates and Leader of the firm’s ExecutiveRisk Practice. She is responsible for the strategic and tactical leadership of this practice by providing consulting, marketing and negotiation expertise on Directors’ & Officers’ Liability, General Partnership Liability, Private Equity/VCAP, Fiduciary Liability, Fidelity, Kidnap/Ransom & Extortion, Employment Practices Liability and Professional Errors & Omissions Liability.

617.204.6706 | jsharkey@wgains.com | Connect with Jennifer on LinkedIn

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