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Increasingly, pension and 401(k) plan fiduciaries find themselves targets of complex fiduciary liability lawsuits that threaten corporate and even personal assets. "When business officers, directors and executives do not fully understand the serious obligations of serving as a fiduciary, under ERISA, they expose themselves to the risk of costly litigation." states Mark Johnson, Ph.D., J.D. and President of ERISA Benefits Consulting.
The Employee Retirement Income Security Act (ERISA) contains four requirements for 401(k) or retirement plan fiduciaries often referred to as the obligation to operate plans for the "exclusive benefit" of the participants:
the duty of loyalty;
the duty of prudence,
the duty to diversify investments; and
the duty to follow plan documents.
ERISA Section 409 stipulates that any "person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach..." The fiduciary may also be personally responsible for paying any civil penalties or excise taxes imposed on an employer by a Court of Law.
New Wave of Lawsuits hits 401(k)s: On September 11, 2006 a single St. Louis-based law firm filed a series of class action lawsuits that has been described as "an all-out assault on the fee structure employed by most 401(k) plans." The targets of these lawsuits are some large plan sponsors and the fiduciaries of their 401(k) plans. The essence of these lawsuits is that the fiduciaries had only vague notions of how they were spending the participants' money and the participants were receiving little or no value for that money. In short, the fiduciaries did not work "solely in the interests of the participants and beneficiaries�for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan."
These lawsuits should not be taken lightly for these litigators have stumbled across the Achilles heel of 401(k) fiduciaries�a compliance and procedure, rather than a value and results, driven approach to running 401(k) plans.
As its name suggests, ERISA was created to help protect the interests of pension and employee benefit plan beneficiaries. Under ERISA, an individual (or organization) is deemed a fiduciary if that person (or entity) exercises any discretionary authority or control over the management of any type of employee benefit plan.
Fiduciaries can also be held liable for the acts, errors, and omissions of outside entities that provide administrative and related services. Outside entities representing this exposure include those organizations that service pension and benefit plans: consulting and actuarial consulting firms, law firms, accounting firms, professional administration firms, investment advisers and investment management companies, and the trust departments of financial institutions.
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