401(k) and Retirement Plans

For many of us, employer-sponsored 401(k) and retirement plans are the cornerstone of our financial security in retirement. And while we trust our employers to make prudent decisions about these plans, many fail to operate in our best interests and violate their legal obligations.

The Employee Retirement Income Security Act of 1974 (ERISA) protects employees’ retirement savings and welfare benefits from mismanagement and abuse by employers and requires those in charge of retirement plans to act in employees’ best interests. As an employee and participant in the plan, you have the right to sue an employer engaged in 401(k) mismanagement.

What is 401(k) mismanagement?

ERISA requires employers that offer retirement plans to set up, monitor and manage the plans prudently. 401(k) retirement plan mismanagement can take many forms, including, but not limited to any of the following:

  • Mismanaged or unreasonable plan administration fees
  • Mismanaged or unreasonable investment fees
  • Mismanaged advisory or consulting fees
  • Offering poor investment options
  • Offering an investment product with high fees when a cheaper option is available
  • Failing to negotiate lower fees when possible

If you feel your employer could be mismanaging your 401(k) account, speak with one of our experienced attorneys to discuss your options moving forward.

401(k) and Retirement Plan Protections Under ERISA

There are several ways ERISA protects your rights to ensure an employer keeps your best interests in mind when handling your retirement plan.

Prohibition Against Self-Dealing

ERISA prohibits employers from engaging in “self-dealing” and requires them to act solely in the interest of employees. For example, self-dealing may occur when companies offer their own products and services within plans and thus generate revenue for themselves out of employees’ retirement funds. Self-dealing can include instances of an employer creating excess revenue from employee retirement accounts by using products or services associated with the company, or any practice in which the fiduciary acts in their own best interest rather than the best interest of plan participants.

Fiduciary Duty for Investments in 401(k) and Retirement Plans

Under ERISA, employers and plan administrators owe a fiduciary duty to employees to make the most prudent investment decisions when managing their retirement plans. This includes making suitable, appropriate and diversified investment decisions that consider both the cost and performance of the plan. Appropriate investment decisions and oversight by employers are critical to meeting plan objectives and ensuring the plan is being operated competently and in your best interests.

The fiduciary duty is one of the highest standards imposed by law. Employers who violate their fiduciary duties violate employee rights under ERISA and may be liable for damages.

Excessive or Unreasonable Fees

ERISA requires the fiduciary to ensure participating employees pay reasonable fees for services including, but not limited to, investment consultation, recordkeeping, participant education and fiduciary support. Sometimes fees for these services are deducted directly from employees’ investment returns, making them difficult to track and determine. Since employees pay most of these fees, employers must use due diligence to understand how fees are calculated, negotiate lower fees when appropriate and ensure they remain reasonable. Employers may be liable for excessive fees, as well as for offering investment products with high fees when lower fee options are available.

Another trick by employers is to deceive employees about which fees and investments are necessary or beneficial to their retirement plan. Keeping a close eye on fees like investment and administrative fees is important to maintaining the security of your retirement plan. “Revenue sharing,” for example, is a common method of hiding additional unreasonable fees. Revenue sharing occurs when administrative fees are subsidized by investment fees, and these investment fees include indirect payments made to fiduciaries.

Pension Plans

A pension is a type of retirement plan in which the employer funds and invests contributions on your behalf. These are also known as defined-benefit plans, since they guarantee a defined amount of money at retirement. By contrast, a 401(k) is a defined-contribution plan in which the employee funds and invests the contributions.

Employees with private pensions are entitled to the same protections against mismanagement by employers and plan administrators as 401(k) participants are, as well as to the payments and benefits guaranteed under the pension plan.

Contact Our ERISA and 401(k) Retirement Attorneys
Baillon Thome Jozwiak & Wanta LLP is dedicated to protecting the rights of employees who have been treated unfairly by the illegal practices of their employers. If you believe your employer is mismanaging your retirement plan or violating your ERISA rights, our employment lawyers want to hear from you. Contact us by clicking here for a free initial consultation.