Breach of Fiduciary Duty by 401k Provider
Options for Employee Investors
An employee can sue a 401k plan investor for a breach of fiduciary duty under certain circumstances. A “fiduciary” is a legal relationship characterized by a high level of power held by one party (the fiduciary) and a high level of trust by the other (the trustee). Examples of fiduciary relationships include lawyers and clients, doctors and patients, and 401k investors and trustees.
Because of the potential for great harm if the relationship is breached, fiduciaries are expected to exercise a high level of care to protect the interests of their trustee, and often must place the trustee’s interests above their own.
It is often thought that if a 401k investor provides the plan’s members with several investments to choose from, they are not liable for the investment choices that the members make. If the underlying investment options were prudent in the first place, then this is generally true. But the law does not protect plan investors whose initial selection of investments was not prudent, or who continued to offer an investment option which was no longer prudent.
401(k) plan investors, besides making prudent investments, are required to make certain disclosures. The terms of the plan must be disclosed to its participants, and must be written in a way that they can understand. Participants must be made aware of any subsequent changes to the terms of the plan.
Fiduciaries are liable for their own breach of duty, and for breaches of co-fiduciaries. In the event of a breach, the fiduciary must return any profits made through the use of plan assets, and will be subject to any additional penalties which the court deems appropriate.
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Last Modified: 12-04-2013 11:05 AM PST
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