Breach of Fiduciary Duty by a 401k Provider

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Breach of Fiduciary Duty by a 401k Provider

If your 401(k) has been mismanaged, you may find that you do not have the funds that you expected. In certain circumstances, you may be able to take legal action against your 401(k) provider.

In general, an employee can sue a 401(k) plan investor for what is known as a “breach of fiduciary duty.”

What Is a Fiduciary?

A fiduciary is a legal relationship characterized by:

Examples of fiduciary relationships include lawyers and clients, doctors and patients, and 401k investors and trustees. Due to the potential for great harm if the relationship is breached, fiduciaries are expected to exercise a high level of care in the benefit of their trustee.

When Is a 401(k) Fiduciary Held Liable for a Breach of Duty? 

A 401k provider may be held liable for a breach of duty when the selection of investments by the plan’s investors was not prudent. However, note there will likely not be a breach of duty when the investors provide members with several investment options to choose from.

In addition to making prudent investments, 401(k) plan investors are required to make certain disclosures. For example, they must fully disclose to the terms of the plan in language that the participants can understand. Participants must also be made aware of any subsequent changes that occur to the terms of the plan.

Consequences of a Fiduciary Breach

When a court determines that a fiduciary has breached their duty of care, the fiduciary will be required to return any profits made through the use of plan assets. They will also be subject to any additional penalties which the court deems appropriate.

Note that the fiduciary is also responsible for any breaches of care from a co-fiduciary.

Do I Need to Consult an Attorney about 401(k) Fiduciary Duties?

Fiduciary duties associated with retirement plans can be highly complex and confusing. If you believe that a fiduciary of your 401(k) has breached a fiduciary duty, you should consult with an experienced pension plan attorney.

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Last Modified: 11-26-2014 10:06 AM PST

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