As an owner, do you offer a 401(k) retirement plan? If you do the Supreme Court has clearly stated you can now be sued!

Posted on February 15, 2009 by Bill Faiferlick

Here we go again, cinch up your waste-band and hold on because if you are an employer – any employer – employees now have the right to sue you for lost investment performance. The Supreme Court has ruled employees have the right to sue owners when mistakes are made that impair account values.

Sounds a bit chilling: Read on. Most business owners or professionals in any profession, regardless of company size, will be flabbergasted to discover what may be classified as “mistakes” as few employers really understand at the fundamental level everything they are agreeing to when they decide to install or move a company sponsored retirement plan.

Please don’t assume we are limiting your liability to disgruntled, terminated employees because I’m not. Even existing employees who had or are participating in a company sponsored plan can initiate action. If you have, or have had employees who’ve participated you are absolutely at risk.

Here’s an initial list of activities which are classified as mistakes;

  • Who made investment decision, i.e. the owner or hired employees? The owner is at risk.
  • Who chose or agreed to the investments allowed within the plan? Some would argue there were better performing funds.
  • Who made decisions to buy or sell at any price, or authorized the plan to be moved to another investment company?
  • What were the internal charges or fees being charged by the fund managers to the funds? Were they reasonable or higher than other firms? Often hard to ascertain, but you’re still liable.

• Was the representative compensation who was advising you in line with industry standards or was it at the high end of the spectrum? Was he/she rewarded with trips as enticements or incentives to use certain funds or group of funds unbeknownst to you?

This does not even begin to constitute a complete list of issues you are now at risk for. It is only intended at this moment to make you aware that the rules have once again changed and not in favor of those who employ much of the workforce in the U.S.

Are you liable for administration problems, yes!

  • There are always issues concerning enrollment. Did you meet all of the notification and eligibility dates? If you did, you’re a rare breed.
  • Were contributions credited and subtracted in accordance with federal law and recorded? Bet you have no idea, you’re not alone!
  • Has all record keeping been performed in a timely manner and all filings made on time?

Operational concerns are where the Department of Labor has a field day. On their web site, they list (and have for a number of years now) the actual statistics showing precisely how much money this department as a total amount has fined company’s all across this nation for noncompliant plans.

While it is true as a percentage of the number of plans in the U.S., proportionally few plans ever experience the effects of a D.O.L. (Department of Labor) audits. Unless something sheds light on the plan or company, most go unnoticed. All that could end in an instant.