Proactive Steps that 401(k) Plan Sponsors Can Take to Avoid Litigation

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.

These actions allow fiduciaries to understand their duties and responsibilities under ERISA and properly document their actions concerning plan assets. Proactive steps also help stave off unwanted and damaging litigation.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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