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Expanding Fiduciary Exposure Under ERISA
Over the past five years, fiduciaries overseeing 401(k) plans have faced an unwelcome barrage of litigation regarding the fees associated with plan investments and administration. Among other things, the plaintiffs' bar has targeted ERISA fiduciaries with lawsuits alleging that the fees paid to investment managers and service providers were “excessive,” imprudently evaluated, and inadequately disclosed to plan participants. Given the sheer size of certain corporate plans, the liability exposure in class actions making such claims can be frightening, even when the per-participant “loss” flowing from an allegedly imprudent fiduciary decision is relatively miniscule.
Thankfully, smaller plans ' such as those administered by most law firms ' have (to date) received scant attention from the plaintiffs' bar. That's the good news. The bad news, however, is that the same pressure to investigate and disclose fees associated with 401(k) plans is now coming to plan administrators in a different form ' new Department of Labor (“DOL”) regulations codified at 29 C.F.R. ' 2550.404a-5.
These regulations, which went into effect for plan years beginning on or after Nov. 1, 2011, require robust disclosures to plan participants and beneficiaries. The consequences for failure to comply are severe. First, in a virtually unprecedented move, the DOL has taken the position that an ERISA fiduciary who fails to comply with the regulations has committed a per se breach of his or her fiduciary duties. But it gets worse. While Section 404(c) of ERISA historically has provided fiduciaries with substantial “cover” in the event that a participant makes a bad investment decision in a self-directed retirement plan, failure to comply with the new regulations eliminates that defense ' conceivably putting plan fiduciaries on the hook for the poor investment decisions of plan participants.
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