We represent Defined Contribution Plan participants in 401(k) litigation and 403(b) litigation to recover amounts lost by fiduciary breaches.
In self-directed individual account plans, the Plan Fiduciary selects a menu of investment options that the fiduciary deems advisable. Each Plan Participant is able to select from the various options. Plan fiduciaries have specific duties to 401(k) plan participants. (see FAQ) Individual account plans–such as 401(k) plans are susceptible to the following breaches of conduct by plan fiduciaries:
Failure to Disclose "Alternative" Asset Risks:
The biggest risks to any pension plan investment are the “alternative” investments. Through a Collective Investment Trust, many plans invest in hedge funds, private equity funds, structured notes, asset backed securities and the like.
These alternative assets might show a high “book value,” but they typically lack liquidity, and fair market value is nearly impossible to assess accurately. This can become a real problem when you need to withdraw money from your individual plan for business or personal reasons.
Failure to Monitor and Remove Under-performing Assets.
The US Supreme Court has clarified in a recent case (Hughes v. Northwestern University) that a plan fiduciary has a duty to monitor all investment options offered to a self-directed plan, and to remove under-performing assets. This duty is particularly critical in a volatile market.
It is not unusual for a plan fiduciary to structure investments to benefit its own trading desk, or that of an associated firm. This is illegal under ERISA, and is something we closely examine in every case.
Failure to Make Contributions
If your employer fails to make matching plan contributions when due, it is likely that the employer has financial problems that may reveal deeper problems in handling plan investments. This is also an area we closely examine in every relevant case.
DUTY TO MONITOR INVESTMENT OPTIONS
What is the Duty to Monitor and Remove Under-performing Investment Options?
A Plan Fiduciary has a duty under ERISA to regularly monitor the investment options offered by the Plan, and to remove those that are under performing.
Does the Fiduciary of a Defined Contribution Plan have a Duty to Evaluate and Explain Plan Assets?
The Plan Fiduciary must file in each annual report a statement of the assets and liabilities of the plan aggregated by categories and valued at their “current value.”
Is There a Reporting Exception for Assets in a Collective Trust?
Yes. If some or all of the assets of a plan or plans are held in a common or collective trust maintained by a bank
or an insurance carrier the report shall include the most recent annual statement of assets and liabilities of such common or collective trust. This does not give a view as to the individual assets in the trust, only the aggregate “current value” of the assets.
How Are the Assets in a Collective Trust Valued?
The “current value” of assets in a Collective Investment Trust are nearly always reported at net asset value, rather than at fair market value. This distinction can make a very important difference in understanding the actual value of your plan assets vs. the reported value. See here for discussion of this valuation issue.
DUTY TO REPORT AND EXPLAIN
How Often Must a Pension Benefit Statement be Reported to Individual Account Holders?
The administrator of an individual account plan must furnish a pension benefit statement—
(i) at least once each calendar quarter to a participant or beneficiary who has a self-directed plan; or
(ii) at least once each calendar year to a participant or beneficiary who not have the right to direct the investment of assets in that account.
What Information Must be Disclosed to Individual Account Holders, and How?
Under an individual account plan, any pension benefit statement must include:
— the value of each investment to which assets in the individual account have been allocated
— an explanation of any limitations or restrictions on any right of the participant to direct an investment (such as limitations on withdrawals)
— the information provided must be written in a manner calculated to be understood by the average plan participant.
Have Questions about your Pension or Benefits Plan?