Fiduciary Responsibilities and Lawsuits: What Plan Sponsors Need to Know
“Remember that you, the employer, are responsible for keeping your plan in compliance.”
— Internal Revenue Service, “A Plan Sponsor’s Responsibilities”
Understanding Fiduciary Responsibilities
Fiduciaries of retirement plans, such as 401(k)s, have a legal obligation under the Employee Retirement Income Security Act (ERISA) to act solely in the interest of plan participants and beneficiaries. This includes:
- Prudent Management: Making investment decisions with the care, skill, and diligence of a prudent person familiar with such matters.
- Diversification: Ensuring the plan’s investments are diversified to minimize the risk of large losses.
- Adherence to Plan Documents: Following the terms of the plan documents as long as they comply with ERISA.
- Monitoring Investments: Continuously monitoring and removing imprudent investment options from the plan.
Supreme Court Rulings
Tibble v. Edison International
In 2015, the Supreme Court ruled in Tibble v. Edison International that fiduciaries have a continuing duty to monitor investments and remove imprudent ones. The case highlighted that the duty to monitor is distinct from the duty to select investments, meaning that fiduciaries must continually evaluate and ensure the prudence of investment options, not just at the time of initial selection but on an ongoing basis.
Hughes v. Northwestern University
In January 2022, the Supreme Court ruled in Hughes v. Northwestern University that merely offering a diverse menu of investment options, including low-cost funds, does not absolve fiduciaries of their duty to monitor and remove imprudent investments. Justice Sotomayor emphasized that fiduciaries must ensure all plan options are prudent, reinforcing the ongoing responsibility to review and manage plan investments effectively.
Recent Settlements
The last few years have seen significant settlements in cases where fiduciaries allegedly failed to meet their obligations. Here are some examples:
- General Electric (GE): In 2023, GE settled for $61 million over allegations that its retirement plan included high-fee proprietary funds that were not in the best interest of plan participants.
- Verizon: Also in 2023, Verizon agreed to a $30 million settlement for similar reasons, involving the inclusion of costly and underperforming investment options.
- MetLife: In a notable case, MetLife settled for $4.5 million in 2023. The lawsuit accused the company of including proprietary investments in its 401(k) plan lineup when cheaper and better-performing options were available.
Trends in Litigation
In 2023, there were 48 new lawsuits filed concerning excessive fees and poor investment performance. This trend reflects the increased scrutiny and legal challenges faced by plan sponsors regarding their fiduciary responsibilities. Law firms are busy managing over 200 pending cases, contributing to a slight decline in new filings but indicating a high level of ongoing court activity.
Industry Leading Skills
Understanding and fulfilling your fiduciary responsibilities is crucial to protecting yourself and your organization from costly litigation. To learn more about how you can ensure compliance and safeguard your retirement plans, contact our team for expert advice and support.
Contact Us
For more information on protecting your fiduciary responsibilities, reach out to our team at through the “Contact Us” page of our website or by clicking the link below. We’re here to help you navigate these complex obligations.