Breach of Fiduciary Duty by a 401k Provider

Breach of fiduciary duty means when the fiduciary acts in the interest of themselves and uses another person who gave them the authority to act on their behalf for their own personal interest. A fiduciary such as a 401k provider must be free of conflicts of interest and cannot use the plan participants and their beneficiaries for their own personal advantage. In other words, you can’t use another plan participants and their beneficiary’s property or assets for your own personal gain.

What is a 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:

• A high level of power held by one party (the fiduciary)
• 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. 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.

What are the Important Responsibilities of a 401(k) Fiduciary?

A 401(k) fiduciary has important responsibilities are subject to strict standards of conduct because they act on behalf of 401(k) participants and their beneficiaries. These responsibilities include:

• Acting in the best interest of plan participants and their beneficiaries;
• Providing the best benefits to the plan participants and their beneficiaries;
• Carrying out their duties cautiously;
• Following the plan documents;
• Spreading plan investments and assets; and/or
• Paying only reasonable plan expenses.

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.

What are 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 that the court deems appropriate. The plaintiff can also recover for punitive damages, particularly if the plaintiff proves that the defendant’s breach was due to malice or fraud.

What Defenses Do I Have If I am Accused of Breaching a Fiduciary Duty?

A typical breach of fiduciary duty defense consists of proving that the agent acted within the boundaries and agreements of his or her position.  The following defenses can be used for breach of fiduciary duty by a 401k provider:

• Lack of fiduciary duty
• The statute of limitation has passed for plaintiff to bring suit
• The fiduciary actions are within the bounds of the relationship
• The other party was also contributing to the wrong and also committed a breach

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 or accused of breaching a fiduciary duty you should contact an experienced workers compensation lawyer who can advise you of the duties owed to you and what remedies you may have in the event of a breach or represent you in a case against you.