Is your 401k plan at risk of a lawsuit?

Lawsuits against employers who provide an inadequate 401k plan are on the rise, and it’s because these simple steps have been continuously overlooked.



Lawsuits against employers who provide an inadequate 401k plan are on the rise, and it’s because simple steps to “act in the best interest of their plan participants” have been continuously overlooked. If the 401k plan your company offers to employees includes funds that haven’t changed in years or if you believe it has “no plan fees,” you may find yourself in a class-action lawsuit.

Attracting and retaining the best employees typically includes a competitive benefits package with a 401k plan. But simply offering a 401k plan isn’t enough. The 401k plan can become one of the business owner’s biggest liabilities. “Your 401k plan is the one lurking in the shadows creating the largest potential liability for business owners and executives,” says Brady Dall of 401k Intermountain Advisors. “With increasing regulatory scrutiny and litigation on even small employers’ retirement programs, process is more important than ever.” Here are two critical steps to avoiding fiduciary liability:

1. Review funds in your company's 401K

Ask yourself when funds were last selected. Do they still fit today? Are there more cost effective share classes or comparable funds that should be considered, even if that means swapping out a current fund?

Form an investment committee that reviews funds at least annually. Have them take notes from their discussion to show rationale for their selections, as the lowest cost fund may not be the best option. “Some funds may be worth the cost, “ says Michael Francis of Francis Investment, “yet employers may bypass them for fear of getting sued.”

2. Review fees associated with the 401k you offer

Oftentimes a plan boasts of having “no plan fees,” but that may simply be in reference to an outward administration fee. Many recent 401k plan lawsuits have discovered excessive charges hidden in the plan itself as 12b-1 fees, also known as “revenue sharing.” Although legal, these fees are silently deducted from fund assets, paid by plan participants, and can easily jump to an excessive amount when not monitored.

When 401k plans have poor fund choices, high fees, or pose a conflict of interest, employers may find themselves in fiduciary hot water. “If you don’t employ fiduciary process experts on your staff, then it is imperative that you partner with someone who can bring those resources and processes,” says Dall.

For more information about offering a 401k plan with fund choices that are proactively reviewed on a regular basis, please contact us at

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