Litigation regarding 401(k) plans is on the rise, and while the Employee Retirement Income Security Act (ERISA) is probably not the first thing on your mind these days, we hope you will take a few moments to consider whether you may have exposure in this area. Any company, including banking companies, that sponsors a 401(k) plan, and any company that handles 401(k) plan assets for clients, needs to be familiar with ERISA fiduciary responsibilities.

A plan has “named fiduciaries,” and ERISA also broadly defines a “fiduciary” as a person who:

  1. Exercises discretionary authority or control in the management of the plan or exercises any authority or control respecting the plan’s assets;
  2. Renders investment advisement for compensation, direct or indirect, concerning any money or property of the plan, or has authority or responsibility to do so; or
  3. Has any discretionary authority or responsibility in the administration of the plan.

A fiduciary has the duty to follow plan terms, to act solely in the interests of participants and beneficiaries for the exclusive purpose of providing benefits and paying only reasonable expenses of the plan, to act prudently, and to diversify plan investments.

Fiduciaries can be held liable to make the plan whole for any losses that occurred as the result of a breach of fiduciary duty, and may be assessed penalties.

The Department of Labor (DOL) may investigate and bring an action against persons it believes are fiduciaries. Delinquent contributions are a topic for the DOL. The regulations regarding the timeframe for deposit of 401(k) deferrals and loan repayments withheld from pay into trust are rather vague, but the DOL is initiating investigations and asserting that breaches of fiduciary duty and “prohibited transactions” have occurred for failure to deposit within days.

The boom in ERISA fiduciary litigation by plan participants started with the “stock drop” cases. Plaintiffs seeking class certification alleged (among other things) that it was imprudent to offer employer stock as an investment in the 401(k) plan, and that fiduciary breaches caused losses to the plan assets. The collapse of the subprime mortgage market and economic downturn resulted in a new round of these cases.

Plan participants have also brought suits seeking class certification against plan fiduciaries and financial institutions regarding other alleged harm to their investments, such as undisclosed revenue sharing, and failure to negotiate lower fees. This is anticipated to result in greater disclosure requirements, including renewed interest in potential conflicts of interest.

Anyone who may be an ERISA fiduciary needs to evaluate whether the necessary steps have been taken to fulfill duties, prevent the likelihood of litigation, and minimize exposure.

The position of federal banking regulators on these matters is clear. Banking companies should carefully consider the implications of status of a fiduciary under ERISA. For example, Appendix E of the FDIC Trust Examination Manual, titled Employee Benefit Law sets forth a fairly in-depth explanation of ERISA matters. The Appendix begin with this Interagency Agreement:

Additional information from the Department of Labor is available at