With the rash of 401k lawsuits, especially the recent one against a 401k plan with $9 million in assets in Minnesota, mirroring the excessive fee suits successfully litigated against larger 401k plans, a prudent process is even more important along with the added fiduciary insurance to help potential defray litigation costs. The benefits law firm of Bryan Cave suggest a 20 step practical process which, if followed, will protect and perhaps insulate 401k plan sponsors.
The highlights from this 20 step process include:
- Focus on the process making sure it is both prudent and documented.
- Understand who at the company is a fiduciary and clearly define their roles.
- Get fiduciary training – there are programs like TPSU and some plan advisors conduct internal training if all cannot attend an external program.
- Hire service providers wisely especially co-fiduciary plan advisors and especially in light of the new DOL fiduciary rule.
- Create a IPS and follow-up – make sure it is flexible.
- Periodically benchmark fees and conduct RFPs especially for advisors and record keepers.
- Get fiduciary insurance.
- Carefully select and monitor investments especially if there’s a brokerage window.
- Understand target date funds which is getting 60-70% of new contributions.
- Have internal controls.
Though these steps might seem daunting, they can easily be accomplished with the help of experienced and knowledgeable partners like an advisor, TPA and record keeper along with industry specific CPAs and attorneys.
Though prudence is king, having fiduciary insurance, which should not be confused with the ERISA bond, is wise as the cost is low and can help defray litigation costs which can add up quickly. Anyone can sue anybody for anything which might eventually turn out to be frivolous only after spending six figures to defend. Look for many more lawsuits against 401k plans especially when the market turns as angry participants look for someone to blame. (See 401kTV’s Master Class “Rash of 401k Lawsuits – Navigating Dangerous Waters”.)
