Small and mid-size 401(k) plan fiduciaries progressively have become the target of plaintiffs’ law firms filing suits based on alleged breaches in fiduciary duty. In most of these lawsuits, participants claim that plan sponsors have breached their fiduciary duty by charging excessive fees, making poor investment choices, or failing to monitor investments properly.
Due to plaintiffs using detailed benchmark data to substantiate their claims, plan sponsors are finding it more challenging to dismiss these suits at the summary judgment stage. As a result, fiduciary duty suits are leading to increasingly extensive and expensive litigation for plan sponsors, often resulting in large settlements for even meritless claims.
Fortunately, plan sponsors can take some proactive steps to mitigate the risk of this type of costly litigation. Examples of these actions include:
- Updating plan documents concerning potential litigation, such as:
- Adding mandatory arbitration provisions to the plan documents; and
- Establishing a shorter limitations period for plan members to bring breach of fiduciary duty claims;
- Ensuring that plan fiduciaries document “procedural prudence” when making fiduciary decisions affecting the plan; and
- Providing fiduciary training to committee members and other plan fiduciaries.
