OUR THOUGHTS ON:

401(k) Plan Sponsors Continue to Face Class-Action Lawsuits

401(k) Plans|Audit|Benefits|ERISA

By Brian Reitz

This past June, a $31 million settlement was reached in a class-action lawsuit filed against Massachusetts Mutual Life Insurance Company back in November 2013.  The lawsuit (Dennis Gordan et al. vs. Massachusetts Mutual Life Insurance Co. et al) alleged that MassMutual breached its required responsibilities in the management of certain of its benefit plans, under the Employee Retirement Income Security Act of 1974 (ERISA).  The suit claimed that MassMutual offered “unreasonably expensive and imprudent investment options” among other violations of fiduciary responsibility.  Other large corporations such as Fidelity Investments and Ameriprise Financial Inc. have also agreed to multi-million dollar settlements for similar claims.

These lawsuits reinforce the fact that plan sponsors and other service providers have a fiduciary duty to manage their 401(k) plans closely and with prudence.  In order to defend against any such lawsuits and adequately manage their plans, plan sponsors and other fiduciaries should assess the process they use to monitor fund offerings and the recordkeeping fees being charged to their plans.  It is also crucial for plan management to establish and continually evaluate their plan’s investment policy.  The investment policy should be used to monitor all investment options and associated fees.  Management’s evaluation of plan investments and fees along with all other fiduciary decisions should be appropriately documented. 

The U.S. Department of Labor provides a detailed information sheet on how an employer can meet its fiduciary responsibilities in managing its retirement plans. This information sheet can be found at the following link:

https://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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