I get these questions a lot. Here are my best answers.
How bad is my 401(k) fiduciary risk?
401(k) fiduciaries are personally liable for their decisions up to personal bankruptcy. Liability lasts six years, even if you retire. We focus on your continual individual fiduciary protection now and after your employment.
Don’t 401(k) service providers cover my liability?
No. Comparing their services to lawsuit grounds reveals large gaps where you get sued and lose. It's crucial to identify and fill those gaps in advance, our focus.
I was told I was protected!
Yeah, everybody gets that, but you are not told about ERISA 410(a). It nullifies ANY agreement to relieve a fiduciary of its duties, responsibilities, obligations or liabilities. Making assurances creates no risk for the promisor because they are null and void; you can't enforce them. Slicky tricky; right? Another example of why knowing the rules matters.
Who can sue me?
You can be sued by the Department of Labor or by plaintiff attorneys representing individual plan participants, groups or class actions. 401(k) participants can join other participant lawsuits or they can wait to see the outcome and file copycat suits. Knowing the attacks and building defenses in advance is the key.
Isn’t fiduciary liability the employer’s issue?
Employers are co-fiduciary defendants with individual fiduciaries. However, because ERISA demands personal liability an individual decision-maker will be the focus, get blamed and be a scapegoat. If you are protected, so is your employer, but the reverse is NOT true. It's why we focus on you.
Don’t warranties or insurance protect me?
No. Warranty conditions usually cancel their promises. Standard business insurance (Bonding, Corporate Liability, E&O, D&O, etc.) excludes ERISA claims. Question: who is right, those who tell you not to worry, or the insurance policies that do worry and won't touch this risk? Worth noting.
How much do my co-fiduciaries share my liability?
ERISA Sec. 405’s co-fiduciary rules depend on who knows what. As the fiduciary receiving 408(b)(2) disclosures, you are deemed fully informed. Co-fiduciaries who don’t receive this information are not. You take the blame. They take a walk.
How do judges determine the winner?
In civil court, judges must rule for the party with stronger evidence. ERISA holds fiduciaries to a “reasonable person” standard—what a reasonable person in similar circumstances would do. Detailing your reasonable fulfilment of duty is our goal.
What do I need to defend myself?
Proving you properly executed your fiduciary duty requires oversight documentation, including minutes and 408(b)(2) evaluations. Warning: a fiduciary that relies on 408(b)(2) evaluations prepared by the same service providers that submitted them is committing evidence suicide; it is not prudent to rely on parties with obvious conflicts of interest.
Why does ERISA 408(b)(2) matter?
408(b)(2) requires service providers to disclose specific data to specific fiduciaries, ensuring the right people get the right information to evaluate their performance. Lapses in 408(b)(2) compliance are a frequent cause of 401(k) litigation, highlighting the need for thorough, independent documentation.
