If you are a participant in a retirement benefits plan, such as a 401(k) a pension plan, and believe your employer or the plan administrators are mishandling plan funds, call our office to speak with a lawyer about your options.
401(k) benefit plans and pension plans are governed by the Employment Retirement Income Security Act (ERISA) law protects employees’ retirement savings from mismanagement, and it requires plan administrators to act in employees’ best interest.
Through 401(k) benefit plans and pension plans, employers promise financial security for their employees’ retirement. When employers administer these plans, we trust them to prudently manage our retirement funds. But when employers mismanage your retirement benefit funds or come up with schemes to divert or misappropriate those funds, you have the right to demand that they be held legally accountable.
What is mismanagement of a 401(k) benefit plan or pension plan?
ERISA imposes fiduciary duties on employers and retirement plan administrators to prudently handle retirement plan assets. That duty can be violated in many ways, including the following:
- Mismanaged or excessive plan administration fees
- Mismanaged or excessive investment fees
- Mismanaged or excessive advisory and consulting fees
- Poor or reckless investment decisions
- Offering high-fee investment products when cheaper equivalents are available
When do mismanaged or excessive fees violate ERISA?
401(k) plans and pension plans incur costs in connection with their investments, bookkeeping, and administration, which are then charged as fees to employees’ retirement funds. ERISA requires these fees to be reasonable, but when fees are deducted directly from employees’ investment returns, it can be difficult for employees to track how much they are paying. If your employer and your retirement plan administrators are passing on excessive, unreasonable fees, you have the right to sue them under ERISA.
What is a “revenue sharing” scheme?
“Revenue sharing” is sometimes used to describe a scheme where an employer or plan administrator allows unreasonably high fees in exchange for a kickback. The employer or retirement plan administrator selects a vendor or investment company and allows it to charge an excessive fee. The vendor or investment company then “shares” the excessive fee by paying an “administrative fee” back to the employer or administrator, allowing them to pocket that fee for themselves.
For this reason, be on guard for unusual or unexplained fees. If your employer or retirement plan administrator insists that a fee is necessary, but can’t explain why the fee is charged or how it benefits your retirement plan, this may signal an ERISA violation that gives you grounds for a lawsuit.
When do poor or reckless investment decisions violate ERISA?
Employers and plan administrators have a duty to make prudent investment decisions when managing retirement plans. This includes making reasonable, appropriate, and diversified investment decisions that consider both cost and performance. If employers or plan administrators repeatedly make poor or reckless investment decisions, you may have the right to sue them for violations of ERISA.
What if I suspect my employer or plan administrator is diverting retirement plan assets?
In accordance with their fiduciary duties under ERISA, employers and retirement plan administrators must act solely in employees’ best interests. For this reason, employers and plan administrators cannot engage in “self-dealing,” meaning transactions that benefit them at their employees’ expense. If your employer or plan administrator retains their own businesses or affiliates to manage or service retirement plan assets—or they engage in any practices that appear to benefit them at their employees’ expense—such transactions can provide grounds for suit under ERISA.
What is the difference between a 401(k) benefit plan and a pension plan?
A 401(k) benefit plan is funded by the employee (sometimes with matching funds or contributions from the employer), and the employee chooses between various investment options. The amount of the retirement benefit depends on how much is contributed to the plan and how well the investments perform.
By comparison, a pension plan is funded by the employer, who makes all the investment decisions. The amount of the retirement benefit is typically a fixed amount (determined by a formula in the plan), and that amount does not depend on how well the investments perform. For this reason, a pension plan is sometimes known as a “defined-benefit plan,” since it promises a fixed payment at retirement.
Regardless of whether you receive retirement benefits under a 401(k) benefit plan or a pension plan, you are entitled to the same basic legal protections. In accordance with their duties under ERISA, your employer and plan administrator cannot mismanage the plan, divert or misappropriate plan assets, or act against employees’ best interests.
Contact Our 401(k) and Retirement Benefits Lawyers
Baillon Thome Jozwiak & Wanta LLP is dedicated to protecting the rights of employees. If you believe that your employer or retirement plan administrator is mismanaging your retirement benefits or violating your ERISA rights, our retirement benefits lawyers want to hear from you. Contact us for a free initial consultation.