Why Your Business Must Take Its 401(k) Fiduciary Responsibility Seriously
On February 24, the Supreme Court heard arguments in a case that stands to affect the responsibilities of businesses providing 401(k) plans and should make all businesses stand up and take notice. Further, according to the Wall Street Journal, “The Supreme Court on Tuesday signaled it was likely to side with 401(k) investors in a case that examines when workers can sue businesses for offering high-cost mutual-fund options in retirement plans when cheaper options are available.”
The lawsuit before the court, Tibble v. Edison International asserts that Edison failed to fulfill its fiduciary responsibility to employees participating in its 401(k) plan because Edison offered several funds among the plan’s investment offerings that had higher fees than other, nearly identical funds. At the heart of the matter is whether the fiduciary responsibility of the employer is ongoing (as the employees/investors assert) or goes back six years or less, as Edison interpreted ERISA.
Though the Supreme Court could rule strictly on the question of time period of liability, it could also rule on a broader scale. In any event, it stands to increase lawsuits related to retirement plan choices. To further illustrate the scope of this issue, three notable lawsuits regarding similar issues have recently been settled, with significant dollars paid by the companies. Those include Nationwide Financial Services ($140M settlement), MassMutual ($9.475M settlement) and Lockheed Martin ($62M class action settlement).
Although your company may not operate on quite as grand a scale as the aforementioned, the extent of liability in not fulfilling your fiduciary duty can be significant and scrutiny by employees and the Federal government are increasing.
Stay tuned for more information on the Supreme Court decision, expected early summer. In the meanwhile, if you’d like to talk to us about how your business can be sure it is fulfilling its fiduciary responsibility on its 401(k) plan, call Sean Spitzer or Lori Wagnon at 404-874-6244.