With the record number of fiduciary breach lawsuits against 401k plans in the past couple of years, how safe is the average 401k plan?

The onslaught of suits claiming excessive fees and failure to monitor plan investment performance and share class has caused many plan sponsors to wonder if they may be next.  Even “plan consulting” expert firms are not immune.  In the past week, law firm Miller Shah LLP filed suit against mega consulting firm Marsh and McClennan for breaching their fiduciary duty by failing to monitor their fund lineup and having underperforming target date funds in their plan.  Despite being one of the lowest cost options available from a target date series, Blackrock Lifepath Index Funds, has been targeted in numerous recent filings due to their relative performance.  In addition, Marsh has been accused of impropriety for including one of its own funds despite underperforming its peers and benchmarks, even though the fund was eventually eliminated in 2019.

Luckily for most plan sponsors, their plans are simply too small currently to warrant much attention due to the lower potential payday for the attorneys filing these cookie cutter lawsuits.  However, plans with over 100 participants must have their plans audited regardless of asset size, the findings of which are public information.  The 5500 identifies the plan investments and expenses not paid for directly by the plan sponsor.  With most plan sponsors choosing to settle claims rather than an expensive trial, will we see these types of claims come down market as the larger plan opportunities are exhausted?  It remains to be seen, but the fact that most of these suits are almost verbatim in their claims, it would make sense that these firms and others looking for a quick payday start to move down market as they only need one disgruntled employee to file on their behalf.

All of this leads to why it is extremely important to have a documented and specific monitoring process in place for plan sponsors who often lack the understanding, expertise, and time commitment to truly fulfill their fiduciary responsibilities under ERISA.

Contact Jason Kell, AIF® at GVA 401k Solutions to learn more about protecting your client’s plans and implementing a prudent process for administrative and investment review.