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Your Company Needs a 401(k) Audit – What Now?
May 13, 2020
Pitfall 2: Not Following the Plan Document
401(k) Plan Sponsor Pitfall #2: Not Following the Plan Document
May 13, 2020

401(k) Plan Sponsor Pitfall #1: Poor Investment Choices Lead to Lawsuits

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Pitfall #1: Poor Investment Choices Lead to Lawsuits

As a plan sponsor, it is your fiduciary responsibility to provide investments that are in the participants’ best interest. If you need help conceptualizing this, ask yourself this question, what’s the point of Sally putting her money into a 401(k) if she can’t make a decent return on her investment? Sally wants her money to make more money. If she did not want that, then she would just use her savings account with a 0.0005 percent interest rate as way to fund her retirement.

Many plan sponsors have neglected their duties when it comes to providing a high-performing 401(k) plan; and many workers are beginning to notice. In the past two years, there have been over two dozen lawsuits filed by workers related high fees and bad investment choices. Recently, Pioneer Natural Resources USA, Inc. was sued (Barrett v. Pioneer Natural Resources USA, Inc.) for breaching their fiduciary duties the following ways:

  • Failing to make sure the plan was reasonable;
  • Failing to remove low performing money market funds; and
  • Failing to offer institutional class shares for mutual funds.

Additionally, in 2017, American Airlines agreed to a $22 million settlement for a lawsuit in which participants sued them for breaching fiduciary responsibilities by selecting and retaining high-cost mutual funds.

So how can you avoid a lawsuit whilst helping Sally take advantage of her 401(k) plan? Get rid of bad investments and, most importantly, monitor plan fees. Below are investment types that you should generally avoid:

  • Money Market Funds
  • Funds in an annuity wrapper
  • Actively managed funds:

PriceKubecka has conducted hundreds of 401(k) audits and want to help you avoid some of the mistakes we see plan sponsors make each year. By avoiding these common pitfalls, you will save yourself headaches, time, and money. For More information: Keep reading to learn about Pitfall #2: Not Following the Plan Document. If you would like to talk to a certified CPA about your 401(k) plan, schedule a free consult.

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