Mismanaged 401(k) Plans May be Subject to Greater Liability
If you, like millions of Americans, have an employer-provided 401(k) plan, a recent U.S. Supreme Court ruling may have profound implications on your retirement. On January 24, 2022, the Supreme Court reinstated a lawsuit by beneficiaries of Northwestern University’s retirement plan against the university and its investment firms. The lawsuit alleges the university and its agents offered investment plans that are too risky or include excessive fees charged by brokers and fees for other transactions.
Under the federal ERISA statute, an employer (or its agents, including investment firms) that offers employees a retirement plan has a fiduciary duty of loyalty to provide sound advice to, and make sound investments for, an employee’s retirement plan. If an employer or its agent breaches this fiduciary duty of loyalty, they may be liable in a lawsuit for the damage employees suffered due to the breach.
The Northwestern ERISA case is unique because the employees themselves selected the plans among many the university offered. The U.S. Seventh Circuit Court of Appeals focused on the “employee choice” aspect of the case, holding that because the employees got to choose their own retirement plan among different options they could not bring an ERISA claim.
The U.S. Supreme Court unanimously reversed, finding that even if employees select their own plan among many others, a fiduciary still has an obligation to “conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.” According to the attorney for the employees, Chicago plainitff’s lawyer Jerry Schlichter, the ruling means that if a fiduciary offers multiple 401(k) plans to employees it still has an obligation to “monitor every fund in the plan and remove those that are imprudent.”
The Supreme Court’s ruling expands an already growing field of litigation by beneficiaries of retirement plans against employers and investment firms that manage employee retirement plans. According to a study by Bloomberg Law, class action lawsuits by employees against employer-provided retirement plans increased fivefold between 2019 and 2020 alone.
Kentuckians are familiar with these kinds of lawsuits, with the Kentucky Attorney General currently pursuing a claim against the fiduciaries managing the Kentucky Retirement Systems plan that benefits state government workers. That case alleges the funds for the plan suffered significant losses due to poor investment advice and excessive fees.
It is likely claims by employees against mismanaged retirement funds will increase in the future as tens of millions of Americans begin paying closer attention to their financial plans after the instability of a global pandemic and as millions of Baby Boomers inch closer to retirement.
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Here at the Poppe Law Firm®, we have a proud history of representing clients who placed their trust in a fiduciary to protect their investments, only to have the fiduciary breach their duty to their client. If you believe a business fiduciary has breached their duties to you—whether the fiduciary was a financial planner, an accountant, a lawyer, or a firm—please contact us for a free intake and consultation online or by calling us at 502-895-3400.