Risk of 401(k) Lawsuits

Risk of 401(k) Lawsuits

| September 07, 2022
Share |

More Department of Labor - ERISA - Retirement Plan Litigation

When a giant organization with extensive resources is 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 coal mine 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.

Board of Directors Named as Defendants

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, “defendants’ 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 recordkeeping market is highly competitive and that numerous vendors are “equally capable of providing high-level service.” The plaintiffs are seeking class-action status.

Key Takeaways

It is important to be aware that the number of ERISA lawsuits is 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.

How Stonebridge Can Help

It can be a bit overwhelming to administer a company retirement plan, given all the documentation nuances let alone the deadlines! At Stonebridge Financial Group, we work exclusively with retirement plans and can help you with everything from designing to running your plan. Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan -- it's is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:

  • Annual 100+ point ERISA assessment
  • Implementation of comprehensive fiduciary quality management system
  • Deployment of complete plan governance system including fiduciary indemnification
  • Committee fiduciary training
  • Implementing cybersecurity best practices 
  • Plan design including student debt benefits
  • Complete IRS and CPA audit support - we have ex-auditors on staff!
  • Participant 1:1 and group education
  • Fee benchmarking
  • Ensuring participant retirement readiness
  • Consulting on financial wellness
  • Process creation and documentation
  • Plan design
  • Contribution match modeling
  • Annual plan compliance review

We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!

Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email info@stonebridgefinancialgroup.com. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!

Sources:
https://s32566.pcdn.co/wp-content/uploads/2021/10/401k-lawsuit-roundup-102921.pdf
https://www.plansponsor.com/familiar-erisa-complaint-filed-kpmg/
https://www.pionline.com/defined-contribution/kpmg-fiduciaries-face-erisa-lawsuit-former-401k-participants

Share |