Legal Blog
How 401(k) Plans and Trustees Can Guard Against Class Action Suits
The action filed by Mr. Feinberg is not an isolated occurrence. In the past two years, other financial companies, including Edward Jones, Morgan Stanley, Neuberger Berman, Franklin Templeton, American Century Investments and New York Life, have been hit with similar class action suits on behalf of disgruntled pension plan participants.
Litigation against Plan sponsors, Trustees and investment advisors likely will increase in the coming months. On June 9, the U.S. Department of Labor fiduciary rule went into effect. The final rule expands the scope of parties who are fiduciaries and who must act at all times in the best interests of pension plan participants.
What should a retirement plan and its fiduciaries do? First, as I suggested in my Blog post on March 15, you should consider converting your 401(k) Plan to a §3(38) Plan to avoid lawsuits for breach of fiduciary duty for failure properly to manage 401(k) investment options. ERISA §3(38) allows a Plan sponsor to appoint an Investment Manager to manage its Plan investments. The Investment Manager undertakes sole discretionary authority to select, monitor and replace investment options for the 401(k) retirement plan. The Plan sponsor and Plan administrator are relieved of the responsibility for the Investment Manager’s investment decisions. That leaves the Plan sponsor/administrator only responsible for prudently selecting and monitoring the Investment Manager.
Second, if the employer is Plan sponsor or administrator, you should consider an audit of the Plan’s current structure and operations. What investments are included in the menu of investment options for Plan participants? Are there too many or too few choices? Do the investments tilt toward in-house, proprietary investments that charge higher fees than other options? How does your investment advisor stack up against the industry standard? Does the advisor comply with the final fiduciary rule? As part of my practice, I advise companies, their pension plans and their plan trustees on ERISA and related legal matters. If you have a question, call me.
Questions about 401(k) plans and class action law suits?
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