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Sunday, January 17, 2021

How to help plan sponsors avoid litigation and limit potential losses

Every 401k plan sponsor has a fiduciary obligation to plan participants. If employees accuse a plan sponsor/employer of not being able to act in the best interest of his employees, it can lead to litigation, money loss, and a damaged reputation.

Therefore, the DOL has released several guidelines, in order to help avoid unwanted consequences; the following “best practices” which have been mentioned in a recent article. Here is short synopsis:

  1. Investment diversification. Each investment of the portfolio should be considered in the context of the whole portfolio, in order to reduce the risk of massive loss, and avoid allegations.
  2. Keeping administration fees/expenses “reasonable”. Any plan sponsor should compare proposals from multiple recordkeepers, to make sure that plan participants are not overpaying.
  3. Investment performance monitoring. Each fiduciary should investigate performance of the existing plan and replace existing assets with better performing and cheaper options, when possible.
  4. Conflicts of Interest Avoidance. If transactions between parties in interest (such as sales, loans, exchanges, etc.) are prohibited, it can lead to fiduciary liability.
  5. Informing Participants and Beneficiaries. According to ERISA policies, all participants and beneficiaries must be regularly updated on plan changes.

Compliance with the best practices provided above will reduce your fiduciary liability and protect you from costly litigation. Be sure to also read Why Having a Fiduciary Process In Place Is Important


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