Why Fiduciary Liability is needed for Defined Contribution Plans
Defined contribution plans, including 401K plans, are subject to ERISA, which means that plan sponsors (companies offering these plans) have fiduciary responsibilities to plan participants, like any employee benefit plan. These companies must act in the best interests of plan participants and keep all expenses reasonable.
The key issues for 401k plans are to ensure that contributions are deposited to the plan (and out of company assets) as soon as possible and ensuring that the plan trustees have provided cost-effective investment options to participants. Law firms have been suing defined contribution plans, alleging that the plans are not providing the lowest cost investment options and that plans are not benchmarking the investment returns of plan investments (i.e. That plan investments are under-performing the market). In short, the fiduciary risk for 401k plans is rising.