For countless Americans, the promise of a secure retirement rests on their 401(k) plans. These employer-sponsored plans provide tax-advantaged retirement savings. As a plan participant, your 401(k) may be one of your biggest assets. Federal law protects the rights of participants in private employer-sponsored retirement plans like 401(k)s. The law, called the Employee Retirement Income Security Act of 1974 (ERISA), establishes detailed regulations designed to safeguard plan participants and their investments, and offers a way to hold plan administrators accountable if they mismanage employees’ 401(k) plans.
What Amounts to 401(k) Plan Mismanagement?
In managing employer-sponsored 401(k)s, ERISA requires fiduciaries such as plan administrators and trustees to uphold standards of duty, loyalty, and prudence. Put simply, the investment decisions of fiduciaries must reflect the best interests of the plan participants and beneficiaries.
Fiduciaries can run afoul of ERISA in a multitude of ways. Examples of violations include:
- Imprudent investing: Investment decisions made without proper care or diversification can deprive plan participants of the earnings they should have received.
- Self-dealing and conflicts of interest: It’s a serious breach of fiduciary duty for plan managers to act in way that benefits themselves, their family or friends rather than the participants.
- Failure to remove poorly performing funds: A fiduciary’s reluctance or delay in replacing underperforming funds can needlessly erode participants’ savings. It may indicate incompetence on multiple levels.
- Excessive fees: ERISA prohibits plan administrators from charging exorbitant or unwarranted fees. Their fees must be reasonable and reflect the services they provide.
- Lack of regular plan review: Fiduciaries must regularly assess plan performance. When they fail to do so, problematic performance might go unnoticed and unaddressed.
- Fraud: Rarely, fiduciaries may engage in deceptive practices such as fraud and embezzlement. These serious situations demand
As a plan participant, it’s important to stay vigilant and informed about your retirement funds. Mismanagement can mean significant losses in your hard-earned retirement savings.
Spotting Red Flags in 401(k) Management
It’s not always easy to identify 401(k) mismanagement. Given the complexity of managing large funds, problems may evade notice until the consequences are significant.
Signs of potential mismanagement include:
- Consistent underperformance: If your plan’s investments lag behind similar funds on a consistent basis, it may be time to take a closer Ongoing underperformance is often an indication of poor management or other wrongdoing.
- Unexpected high fees: Unexplained increases in fees or expenses that don’t match services could be grounds for an ERISA claim. An investigation into those fees could reveal other violations.
- Lack of communication: Fiduciaries must keep you informed about plan changes and The law requires them to provide certain disclosures and periodic updates. Failure to do so indicates a lack of compliance that may be far-reaching.
- Gaps in documentation or contributions: If you notice inaccuracies or anomalies in your plan statements, or if your account is missing contributions, then it’s critical that you take action.
- Stagnant investment options: Your investment options should evolve to reflect changes in market conditions and new opportunities. If those options haven’t changed in years, then it may be due to sloppy management.
- Needlessly complex investments: While not always problematic, overly aggressive or complicated investment strategies might mask high fees or poor performance. Keep an eye out for unusual or convoluted
If you suspect that your 401(k) plan is being mismanaged, it might not just be a matter of poor performance – it could be a legal issue. Our ERISA attorneys can determine whether you have a claim. A successful claim would secure recourse for you and potentially other plan participants.
Our Legacy of Success in Pursuing Justice for 401(k) Plan Participants
At Sanford Heisler Sharp McKnight, our ERISA lawyers understand the critical role that 401(k) plans play in the financial stability of millions of Americans nationwide. We are committed to protecting the rights of plan participants. Our attorneys have earned national acclaim for their groundbreaking work in ERISA litigation.
Our managing partner in San Diego, Charles Field, leads our ERISA practice. Read his reflections about his work in spearheading legal claims for 401(k) plan participants.