According to USA Today, the stock market gained 20 percent last year, making 2017 one of the best years for stocks since Y2K. A natural result of these gains was a rise in the value of 401(k) or 403(b) investments for consumers around the country. While the money in 401(k) and 403(b) accounts grew, so did the litigation surrounding the fiduciary duties of their providers to limit excessive fees charged to plan participants. What could change as the result of the litigation and how does it affect you as the beneficiary of a 401(k) or 403(b) account?
The potential for changes due to 401(k) litigation is important to everyone saving for retirement because new rulings can affect the way your company’s plan is managed. Under the Employee Retirement Income Security Act of 1974, also known as ERISA, companies receive guidance on how to operate retirement accounts. The law establishes that employers and benefits managers are subject to fiduciary duties that require them to manage retirement plans with the best interests of their beneficiaries in mind.
Defining fiduciary duty through litigation
Consumer access to technology and financial innovation is changing plan offerings and how employees choose to invest their retirement benefits. According to the Center for Retirement Research (CRR), retiree benefits litigation on three areas including:
- Investment choices and monitoring by fiduciaries
- Fees charged by fiduciaries
- Self-dealing in violation of fiduciary obligations
Each of these affects the balance between a company’s ability to administer and offer a plan and the consumer’s ability to grow their retirement savings. It is important to remember that employers are not required to provide retirement plans under ERISA, but they are required to operate them under a specific set of minimum standards.
Accounting for changes
As shown by the CRR, most litigation does not directly address beneficiaries’ investment returns, but instead addresses practices that can significantly reduce investment growth such as failure to monitor whether available investments remain prudent choices or whether fees charged by particular funds exceed benchmarks. Although the risk of losses due to market fluctuations remains the responsibility of the individual investor, such declines should not result from imprudent actions by the plan’s sponsors and benefit managers.
As a beneficiary, you should expect your retirement plan to be run with your best interests in mind in order to meet the goal of providing retirement security. If you believe your retirement assets are not being managed appropriately, you should consult with an attorney knowledgeable about the issues that govern the fiduciary obligations you are owed.