Small 401(k) Plan Litigation and the Nuisance Value

SAN FRANCISCO - APRIL 23:  California attorney...
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The main benefit to a plan designed to minimize fiduciary risks is a prudent plan for your employees. This would result in an excellent opportunity for your employees and yourself to successfully retire.

When I write about the needs for plan sponsors to understand their responsibilities as plan fiduciaries and their potential liability if they ignore their duties, I hear the same complaints about my ideas. The complaint which was even leveled by other ERISAattorneys is that small 401(k) plans never get sued over plan costs or a failed ERISA Section 404(c) process for participant directed plans.While I don’t suspect that best ERISA class action litigators will bother with a $2 million 401(k) plan, one of the major reasons that small plans haven’t been sued is that ERISA litigators haven’t gotten there yet. They are too busy with larger plans and I assume that once the larger plans are taken care of, some ERISA litigators will pursue smaller ones. I have already seen one litigator already placing ads trying to solicit potential clients who are participants in 401(k) plans using insurance company platforms. So while smaller plans haven’t been targeted yet, who is to say that trend will continue?

In addition when it comes to litigation against smaller plans, perhaps people think too big. Perhaps the litigation is more of the nuisance kind, perhaps as a threat of litigation by a former, aggrieved employee with no hopes of taking it to court and just trying to settle it for $25,000 or less.

As the baby boomer generation prepares to retire a majority, 80%, do not have the resources. Many will be looking for someone to blame, like their former employers. It is actually easy to protect yourself from fiduciary risks.

Please comment or call to dicuss how this affects you and your company.

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