401k: The Business Owners Dilemma


As a business owner you have to ask yourself an important question: Are you doing enough to reduce your fiduciary liability? Some owners may not even be aware that they could face serious consequences for not staying on top of how their employee plans are managed.

According to recent financial studies, nearly four out of five businesses examined generated “monetary results for plans or other corrective action” totaling in excess of $1 billion in fines. If that wasn’t bad enough, the U.S. Department of Labor now says it will hold 401k plan sponsors liable even if it is their service providers who fail to comply. Life just got much harder for 401k plan sponsors.

The U.S. Supreme Court stated that any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed by this title shall be personally liable to make good to such plan any losses to the plan resulting from such breach.

This also means that directors and officers of your company who are responsible for management and control over the company’s 401(k) and pension plans can be held individually responsible for any mismanagement or misappropriation of funds held on behalf of others.

Even the Big Guys Feel It Too …

Walmart Stores and Merrill Lynch have agreed to pay a total of $13.5 million to settle a long-running class-action lawsuit alleging the world’s largest private employer and its retirement plan administrator breached their fiduciary duty toward nearly 2 million past and present Walmart workers in the company’s 401(k) plan.

As a plan sponsor, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). This booklet addresses the scope of ERISA’s protections for private-sector retirement plans and provides a simplified explanation of the law and regulations (Public-sector plans and plans sponsored by churches are not covered by ERISA).

In closing, the cost of not acting is monumentally higher than the cost of fixing and reviewing plans immediately. If you even suspect that you or your company might be vulnerable to violations, you should have the plan examined immediately by a financial advisor firm. Most firms have specific departments that only handle 401k’s. For more information on your fiduciary duty, contact Betcher Financial Group.