Quick Tips: Limiting Liability in Retirement Plans

From smSmallBiz

JAMES LARUE HAS been in and out of court for the past five years pleading his case of lost retirement dollars to just about anyone who'll listen. His situation and the questions it presents are so ponderous that recently even members of the Supreme Court gave a listen.

LaRue is suing his former employer, DeWolff, Boberg & Associates, for improper management of his 401(k) plan, which the Dallas consulting firm denies. LaRue says he instructed DeWolff to sell stocks owned within his 401(k) and move to cash during the tech-stock boom. LaRue contends that his former employer failed to do so, and as a result, he lost $150,000 worth of retirement savings.

The decision before the Supreme Court now is whether or not a single plan participant, in this case LaRue, can sue and receive money for a breach of fiduciary duty. According to the Employee Retirement Income Security Act of 1974 (or ERISA), this so-called "fiduciary duty," which is a legal relationship between two or more parties, requires that the "fiduciary" — typically a business owner or third-party administrator — act in a prudent manner ensuring that a retirement plan provides retirement income for employees.

If the court rules in LaRue's favor, individuals will be able to bring claims as opposed to only being able to do so when everyone in the plan experienced a loss due to negligence or wrongdoing, which is the current recourse, says Carrie Byrnes McNichols, an attorney at Bryan Cave's Employee Benefits Group in St. Louis. "That could be potentially very costly to the company sponsoring the plan and will likely lead to increased lawsuits and potentially increased liabilities," adds McNichols.

The potential of this case, combined with a greater scrutiny of fees and expenses as well as increased transparency that will soon be required of defined-contribution retirement plans like 401(k)s, makes the onus of properly managing employees' retirement savings all the more important. Here are a few ways to do so and limit your liability in the process: