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Lawsuits in 401(k) Plans Ruin a Fiduciary’s Day

401k fiduciary lawsuitLawsuits in 401(k) plans are on the rise.  Fiduciary Lawsuits in 401(k) Plans create a huge distraction.  Since January 2020, more than 200 fiduciary lawsuits have been filed.  Hundreds of suits have been initiated over the past 15 years.  It’s important for retirement plan committees and fiduciaries to understand their responsibilities.  These responsibilities include the interests of the plan and plan participants.  All Plan fiduciaries should examine more closely areas where they may be falling short of fulfilling fiduciary obligations.

According to an article recently published in Employee Benefit News, plan fiduciaries may not be hitting the mark when it comes to meeting their responsibilities.  The proliferation of lawsuits in 401(k) plans would indicate that is the case.  Additionally, participants don’t seem to have a clear understanding of the fees they pay for their workplace retirement plans.  41%of plan participants incorrectly believe they don’t pay anything at all.  This has been reported according to the Government Accountability Office (GAO), as cited in EBN.

According to the EBN article, penned by respected retirement consultant Al Otto, “Arrogance and abdication of duty are often the culprit.  In many cases, executives in the organizations that were sued simply didn’t pay attention until they were taken to court.  This is a ridiculous posture.  Meanwhile, participants may be paying excessive fees or have too many poorly performing funds in their portfolios with no real oversight.”

Mr. Otto noted that the word “fiduciary” is overused as a marketing term, or as a way to describe how individuals with those responsibilities are compensated.  However, he also wrote that, “… a true fiduciary is a leader who possesses the courage and knowledge to address tough issues and drive better outcomes.  A true fiduciary is not defined by a compensation system.  For a trained fiduciary, it is a way of life in service of others.”

“Better training is needed for those assuming fiduciary responsibility, and when necessary, fiduciary responsibility should be outsourced to experts”, Mr. Otto opined.  Meeting fiduciary responsibility requires ethics, leadership, and assumption of responsibility.  It is not an obligation to be taken lightly.  Mr. Otto cited three areas of fiduciary excellence, according to The Center for Board Certified Fiduciaries (CBCF) CEO Don Trone:

  • Purpose – defined by competence, courage, collaboration, character and compassion;
  • Passion – defined by individuals who are adaptive, attentive, authentic and accountable; and
  • Process – defined as a universal decision-making process through which a fiduciary will engage, explore, envision, execute and examine.

In many cases lawsuits in 401(k) plans can be avoided.  Mr. Otto suggested that fiduciaries should operate at a higher level of leadership and excellence, using guiding principals as their north star.  In that context, he offered seven key questions educated fiduciary committees should ask:

  1. What is our purpose in this fiduciary role?
  2. Who do we owe our loyalty to?
  3. Does our process embody today’s best practices?
  4. Are we appropriately monitoring outcomes?
  5. Do we have control of the economics of the assets we are overseeing?
  6. Are there any conflicts of interest?
  7. Are we making decisions with courage, integrity, and commitment to our constituents?

Asking these questions, and answering them honestly, can lead to better, more prudent decision-making when it comes to serving the best interests of your plan and participants.  They are a starting point that can help bring to light areas of weakness, and help retirement plan committees and fiduciaries focus on improving plan and participant outcomes.

Learn more about the The Center for Board Certified Fiduciaries by clicking here.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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