Andrew J. Goldberg,
The Daily Record Newswire
You can no longer just set it and forget it, especially after the recent Supreme Court Ruling regarding 401(k) plans.
The Supreme Court ruled in Tibble, et al. v Edison International et al., 575 U.S. ____ (2015), Docket 13-550 and decided May 18, 2015, that a company can’t just start a 401(k) plan, select proper investments, and then not monitor the quality, expenses and returns of the investments. The Trustees on the plan have a continuing duty to review these elements of the plan. And if they don’t, employees can sue them.
This new ruling will affect every company from the small mom and pop shop that has a 401(k) plan to the large multi national companies. Any company that offers a 401(k) plan to its employees absolutely must now review its plan terms and investments.
What does this mean for companies with 401(k) plans?
1. Companies must now have a committee or advisors to periodically review plan investments.
2. Companies must review their business insurance to make sure they have coverage for breach of fiduciary duty or other 401(k) plan administration malfeasance.
3. 401(k) plan Trustees may want to reconsider whether they even want to be Trustees. The Trustee have more personal responsibility and risk of being sued, than ever before.
4. Companies must now have a serious meeting with their 401(k) plan administrator to make sure they are offering the best investment options, at the lowest cost. Business owners (and plan trustees) must hold plan administrators accountable, to minimize the risk of being sued.
Five essential questions to ask your plan administrator
Unfortunately though, the Court decision did not determine how often plan administrators and Trustees must reexamine the investments. As well, the ruling did not define the legal standard of “care, skill, prudence and diligence” when evaluating the investments. However, we believe these 5 Questions are a great place to start your on-going due diligence.
1. Are the 401(k) mutual funds available in other share classes with lower expenses?
2. Are the fees of these mutual funds comparable to the fees of mutual funds in similar asset classes?
3. Are there additional fees being charged other than the expense ratios of the funds?
4. Are my 401(k) plan administrator fees comparable to other plan administrator fees?
5. Are the investment returns comparable to the returns of other mutual funds, taking into account all the fees being paid.
There is a long history of litigation in the ERISA and 401(k) plan and pension plan area. This ruling will only encourage more litigation. Now is the time to act to protect yourself against claims by your employees.
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Andrew J. Goldberg earned his J.D. from University of Michigan Law School
