May 25, 2016
Author(s): Catherine T. Gonzalez
A recent class-action lawsuit demonstrates that employers with even small- or mid-sized 401(k) plans need to take steps to defend against potential ERISA lawsuits.
In recent months, over 20 ERISA fiduciary breach class action complaints have been filed against 401(k) plan sponsors and fiduciaries. The employers and plans involved are well-known corporate giants with mega-size plans. The complaints allege that plan participants have lost millions of dollars in retirement savings due to the plans paying excessive administrative fees and offering expensive, under-performing investment options. Small and mid-market employers seeing the headlines may believe they are flying under the radar, invisible to plaintiffs’ attorneys who stand to collect millions of dollars in fees going after the deep pockets.
A class action complaint just filed in the U.S. District Court of Minnesota may be a wake-up call.
Proving that even modest size 401(k) plans are fair game, a fiduciary breach class action suit has been filed against the plan sponsor and fiduciaries of the LaMettry’s Collision, Inc. 401(k) Profit Sharing Plan. The plan has approximately 130 participants and $9.8 million in assets. The suit claims that LaMettry’s president and CFO are the plan fiduciaries and select the plan’s investment options, which include mutual funds, pooled separate accounts and a guaranteed investment contract offered by Voya. Voya is also the plan’s recordkeeper. Plan participants claim that the plan fiduciaries and Voya “stacked the deck with expensive investments and unnecessary charges costing plan participants millions of dollars over time in lost retirement plan growth.”
The ERISA fiduciary breach allegations are the same as those made in the cases against the giant employers and their plans:
While any particular claim against these fiduciaries may not be successful, there are lessons to be learned from the unprecedented number of ERISA fiduciary breach class actions being filed. Plan fiduciaries must have a process in place to make prudent decisions about plan investments and the retention of service providers, they must continuously monitor and assess the ongoing prudence of the investments and the reasonableness of plan administrative expenses, and they must make any changes needed based on such diligence.
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