Skip to main content

Check out our 4Q2023 Market Review and Investment Outlook for 2024

Qualified May2022 Article1

The Risk of 401(k) Lawsuits: If It Can Happen to Them…

When a giant organization with extensive resources gets sued for alleged ERISA compliance failures — especially if the organization’s own service offerings include reviewing for such violations — that could very well be the canary in the coalmine for all other, lesser endowed firms. And that’s perhaps the key takeaway for plan sponsors in light of a complaint filed late last year against KPMG for an alleged fiduciary breach.

The lawsuit, filed by former KPMG 401(k) plan participants, names the firm’s fiduciaries — including its Board of Directors and Pension Strategy and Investment Committee — as defendants. Noting established requirements, it points to the high level of diligence and care imposed by ERISA on fiduciaries and their responsibility to establish a prudent process for choosing service providers and investment options. It also cites their responsibility for ensuring these selections are appropriate on an ongoing basis. “Prudent and impartial plan sponsors thus should be monitoring both the performance and cost of the investments selected for their retirement plans,” the complaint states, “as well as investigating alternatives in the marketplace to ensure that well-performing, low-cost investment options are being made available to plan participants.”

The plaintiffs allege that KPMG, by failing to reduce its plan’s expenses or appropriately scrutinizing investment options, failed to meet the required standard of care. The complaint states the plan’s considerable assets under management should have given it substantial bargaining power to negotiate more competitive service rates. The plaintiffs allege excessive recordkeeping and administration fees, accusing KPMG of wasting plan and participants’ assets due to unnecessary costs. The suit alleges that the firm failed to conduct RFPs “at reasonable intervals … to determine whether the plan could obtain better record-keeping and administrative fee pricing from other service providers.”.

The complaint alleges that KPMG’s plan costs were more than twice that of its peers and that certain funds were maintained despite other available investment options that had lower costs and a history of better performance. Plaintiff’s counsel adds, “[d]efendants’ mismanagement of the Plan, to the detriment of participants and beneficiaries, constitutes a breach of the fiduciary duties of prudence and loyalty, in violation of 29 U.S.C. § 1104. Their actions were contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars.”

In arguing that plan costs were excessive, the complaint also states that the record-keeping market is highly competitive and that numerous vendors are “equally capable of providing high-level service.” The plaintiffs are seeking class-action status.

It is important to be aware that the number of ERISA lawsuits are growing. Litigation is expensive, even if fiduciaries have a spotless record of taking care of their ERISA responsibilities. It behooves the prudent fiduciary to explore every avenue to protect themselves whilst acting in the best interests of their participants.

Please note, this article is based solely on the plaintiff’s counsel filed complaint which is purposefully crafted towards an intended end. It does not include independently investigated facts, the defendants’ perspective on the allegations, or any opinion of the author. It is always important to hear both sides of any argument and view the evidence before taking away any substantive opinion of the facts in issue.



Sources:

https://s32566.pcdn.co/wp-cont...
https://www.plansponsor.com/fa...
https://www.pionline.com/defin...

Related Insights
Blog 3 original

Boosting Lower Wage Earners’ Retirement Readiness

A recent Vanguard report sheds light on the pressing challenges faced by retirees across different income brackets. The findings reveal that lower income workers allocate a significantly larger portion of their pre-retirement income to meet their daily needs, leaving them with a substantial shortfall in retirement readiness — even when factoring in Social Security benefits.

Plan sponsors can take proactive steps to help participants better prepare for a secure retirement to ensure that all employees, regardless of income level, have a fighting chance at a comfortable retirement. Learn more about those key steps.

Read More
Blog 2 Benefits

Balancing Competitive Benefits in Budget Constraints for Plan Sponsors

It is crucial for companies to regularly benchmark and compare their benefits packages to their industry peers in order to maintain their competitive advantage and status. Offering a competitive benefits package, however, can be challenging for plan sponsors due to budgetary constraints.

But one industry leader says a plan sponsor should ideally reflect the investment "necessary to attract and retain the talent needed to drive business success" in their
"total rewards budget," which includes both benefits and compensation. That "right" amount of budget, he says, will depend on a number of factors. Find out more.

Read More
Blog 1 DOL

DOL Releases New Fiduciary Advice Proposal

On October 31, 2023, the Department of Labor (DOL) released its “Proposed Retirement Security Rule: Definition of an Investment Advice Fiduciary.” If finalized, a new definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) would apply, likely resulting in more individuals becoming fiduciaries. Learn more.

Read More
Play