Every Little Thing … Employer Considerations as New 401(k) Lawsuit Includes Extensive Claims

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by Alex Smith

A recently filed lawsuit related to Swiss Re’s 401(k) plan stands out because of the extensive assortment of allegations. These allegations against Swiss Re, its 401(k) plan fiduciaries, and the plan’s recordkeeper include:

  • the plan paid excessive recordkeeping fees;
  • the plan’s investment options, including its target date funds, underperformed;
  • some of the plan’s investment options offered lower cost share classes than the share class available in the plan;
  • the plan failed to utilize the assets in the forfeiture account;
  • the plan’s recordkeeper misused participant data to market its Roth IRAs to participants; and
  • the plan’s fiduciaries failed to monitor the recordkeeper’s misuse of participant data.

While there have been numerous lawsuits in recent years alleging that fiduciaries of large 401(k) plans have breached their ERISA fiduciary duties for various reasons, such as the plan paying excessive fees, the plan’s investment options underperforming, or the plan’s forfeitures not being utilized appropriately, the prior lawsuits did not include such an extensive assortment of claims. At this early stage in the litigation, it is not yet known whether the claims have any merit or if the lawsuit just included the broad assortment of claims in hopes that some claims survive a motion to dismiss.

Regardless of the outcome of this lawsuit, the extensive allegations highlight the importance for 401(k) plan fiduciaries to follow best practices to best position the plan fiduciaries if faced with a lawsuit, or hopefully avoid a breach of fiduciary duties lawsuit altogether. Some best practices for plan fiduciaries to consider include:

  • Monitoring the fees paid by the plan to ensure they remain competitive.
  • Monitoring the performance of the plan’s investment options and documenting the evaluation and decision-making process.
  • Understanding the available share classes for the plan’s investment options, and documenting the rationale for selecting one share class option over another.
  • Monitoring the plan’s forfeiture account, and ensuring that forfeitures are utilized relatively quickly.
  • Understanding how the recordkeeper could utilize participant data and negotiating provisions in the recordkeeping services agreement to restrict the recordkeeper’s use of such data.