The Sum of Small Plan Sponsor Fears

As an ERISA attorney, I hear it all the time. Whether it’s from plan sponsors, their non-ERISA attorneys, or even from some other ERISA attorneys, is that the fear of any trouble with a breach of fiduciary responsibility is completely overblown. I disagree because the fear is not where you think it is.

The reason I hear that any fear from a fiduciary breach is negligible because the plan we’re talking about is a small to medium sized plan.  These “experts” claim that any potential fiduciary breach is negligible because it’s very unlikely any aggrieved current or former plan participant will sue them.

Well, pal, we have more to fear than any participant lawsuit. The Department of Labor (DOL) is very serious about enforcing ERISA and the regulations they promulgated. A small to medium sized plan that isn’t operating appropriately will be at the mercy of any DOL agent.

How will these DOL audits come about? They could be random, but more likely, as a result of a complaint by a current or former participant.  If you’re a small plan sponsor, do you want to be at the mercy of someone you might have laid off or a problem employee? There is an old saying that “for the want of a nail, a kingdom was lost.” When it comes to a retirement plan, for the want of an aggrieved participant, a lot of liability was created.

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One Response to The Sum of Small Plan Sponsor Fears

  1. Well said, Ary. But as you are well aware, you’ve only touched on the issues [of 408(b)(2) compliance and ERISA fiduciary responsibility]. Practitioners are having to expend a lot of client time and newsletter effort in an effort to drive the important points home. Such as liability attorneys “getting wind” of a Plan Sponsor’s lack of compliance; they know that many small plan sponsors will settle readily to even a single participant’s claim of impropriety, rather than run up their attorney bills or suffer nasty press. But then, another participant can pick up that same issue, etc. [You don’t normally expect “class action” until the plan’s census grows to a certain size.] We even have a highway billboard, in our area, announcing free legal consultation if any employee in a 401(k) plan has concerns about proper handling of matters in the company’s plan. The DOL needs to publish some audit assessments in the small plan arena. There’s just no real fear of getting caught, yet.

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