Many employees in Maryland and across the country participate in employer-sponsored retirement plans, such as 401(k) plans. Yet the stock market crash of 2008 slashed the value of many individual 401(k) plans — by over half, in some cases. That caused some employees to question their employer’s 401(k) investment decisions, as well as the extent to which an employer might be liable as a fiduciary for retirement plan losses.
A 2008 decision by the U.S. Supreme Court provided the answer: An individual employee does not have to sue on behalf of losses to the plan as a whole. Rather, an employee can bring an allegation of 401(k) fiduciary mismanagement based on his or her individual account losses.
Target date funds in 401(k) plan investments were particularly at issue in many employee inquiries. This type of investment strategy makes investment decisions based on an employee’s target retirement date. However, some employees may not have been aware that many higher risk investments were included in target fund allocations. When those higher risk investments tanked in the 2008 crash, some employees may have been surprised.
What this means for employers is that the scope of their 401(k) fiduciary duties must be clearly set forth in applicable disclosures. An experienced employment law attorney can review an employer’s 401(k) plan, ensuring that the options and obligations of employer and employee alike are clearly defined. For example, an employer may be able to reduce exposure to fiduciary lawsuits by giving investment decision-making power to plan participants. An attorney can review all of the available options.
Source: New York Times, “Pushing Back Retirement, and Not Always for Money,” Steven Greenhouse, March 12, 2013