401k At Risk Of Litigation?
In 2020, there were over 200 lawsuits alleging malfeasance and negligence, among other things, against 401k plan sponsors. Earlier in 2021, life insurance firm John Hancock settled a 401k lawsuit for $14 million. The lawsuit accused John Hancock of alleged self-dealing and listing their own series of products in the investment lineup for the plan, even though there were lower-cost alternatives with better-proven track records. They were also accused of having excessive administrative fees when compared to similar-sized plans. Along with the $14 million settlement, John Hancock agreed to retain a 3rd party investment consultant for the next 5 years, develop an investment policy statement, and help negotiate record-keeping costs. If a large company like John Hancock can get hit, then that begs the question – Is YOUR 401k a litigation risk?
Due to the COVID-19 pandemic and the increased amount of time people have spent at home, more and more employees have begun to look into their 401ks. And from the looks of it, things must not have been so great, because there’s been an 80% increase since 2019 from the amount of 401k class actions that have been filed, with that number being more than double what it was in 2018.
Usually, these lawsuits tend to target the larger plans because of the financial incentive, but that has started to change over the recent years. As everything adopts a more digital approach, it has become much easier to find information on plans of all sizes, including the smaller ones. Smaller 401k plans don’t always have the professionals on board to make sure all the moving parts of the plan are working in conjunction with one another, making them an easy target for predatory law firms that need only just a few disgruntled former employees to move forward with their litigation.
The fact of the matter is, most business owners and executives are focused on running the business, not the 401k. And why should they? You just put money in and forget about it, right? WRONG! There are a lot of details that need to be addressed in a 401k, such as-
- Are there share classes with lower expense ratios?
- Did you hire your recordkeeper without competing bids?
- Are all contributions being submitted in a timely manner?
- Are you identifying and enrolling eligible employees on time?
- Are you sending the required plan notices to all eligible participants of the plan when required?
With that being said, maintaining a 401k is a lot of work. However, just because you have a lot going on doesn’t mean the 401k needs any less attention. If anything, it’s the exact opposite! As your business continues to grow and your team expands, you will have more participants in the plan and more to keep track of. Partnering with the right financial advisor who can help you navigate the complexities of company retirement plans is one of the first steps you can take in assuring you are taking proactive measures.
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