As an ERISA attorney with a nationwide practice helping plan sponsors and plan providers, the most annoying thing is when you hear a plan sponsor (sometimes with the guidance of their attorney who has 0% knowledge of ERISA) tell you that they don’t believe that they have any issues with their 401(k) plan sponsor when it’s clear that they do.
These plan sponsors will tell you that they aren’t likely be sued or be under governmental scrutiny because they are one of the small plans and they only like to make examples of the larger ones.
I have seen a lot of stuff through my 40+ years, but one thing I know is that it only takes one. It only takes one person to destroy the entire “world”, the world being something other than the actual world. It takes one co-conspirator to turn good to sink a criminal conspiracy. It takes one employee to complain to end a hostile workplace. So it will only take one plan participant to sink a plan sponsor who is not handling their retirement plan with the requisite fiduciary duty that the plan requires.
Plan sponsors have too much confidence in their position that they won’t suffer any harm in the mishandling of their retirement plan. The confidence is misplaced because a class action lawsuit is just one avenue where a plan sponsor can be harmed.
Having been involved in quite a few Internal Revenue Service and Department of Labor (DOL) audits, I can attest that only one plan participant to complain about a plan sponsor’s retirement plan is enough. Quite honestly, my two largest DOL audits were directly as a result of plan participants complaining to the DOL because of their claims that they were due benefits that they didn’t get. Sometimes, it’s better off for a plan sponsor to get sued through a class action that going through an audit. Thanks to the fee disclosure regulations, the DOL’s use of the auditing process will be ramped up. That is why a plan sponsor needs to clean up their act, despite their attorney’s claim otherwise.
Another threat is the vindictive former employee. Having worked for someone else for the first 11 years after law school, I have seen quite a few co-workers who were terminated. Some were as a result of a cut back in business, but there were a few who deserved it. Some of these employees go quietly and some don’t. Some of these former employees had to get back at their employers for letting them go. I remembered a couple of former administrators who complained about discrimination for their discharge. Having worked with these administrators and having worked for the chief operating offer who was a miserable man, I can attest that those terminations were not as a result of any discrimination unless it’s illegal to discriminate against the incompetent.
That being said, a poorly run retirement plan can be the one weapon a former aggrieved employee could use to get back at a former employer. Call it blackmail or anything else you want to call it, but complaining or threatening to complain about a poorly run retirement plan could be used as a way to get a small (probably less than $5,000) settlement for the incompetent former employee. Again, it only takes one to make a plan sponsor’s world spin out of control.
Seeking the guidance of solid and cost effective plan providers is like going to the dentist. It may not be the most pleasant experience, but it’s a necessary one to maintain health now and avoid greater harm later.