March 2008

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401(k) ruling affects employers

By Andrew Horowitz

If an impending recession, credit crisis, and housing meltdown weren’t enough; a recent Supreme Court ruling gives you something else to worry about. According to the court, workers will be able to sue their employers if they have losses in their 401(k) plans.

A bit of background may help to shed some light on the problem at hand. An often-overlooked regulation within the ERISA code pertains to liability and oversight. Known as Section 404(c), it provides that “where a participant or beneficiary of an employee pension benefit plan exercises control over assets in an individual account maintained for him under the plan, the participant is not considered a fiduciary by reason of his exercise of control and other plan fiduciaries are relieved of liability for the results of the participants or beneficiaries exercise of control.”

What does that mean to the average business owner? Until now, it was clearly documented that the onus was on the 401(k) plan participant to choose suitable investments. In addition, employers were instructed to stay away from providing direct investment recommendations to participants.

No more. The rules have just changed. Now, employees may be able to have a defensible position that actually allows for recovery if they lose money on investments of their choosing.

Think this is ridiculous? Of course it is. Yet in our current economic

In a time that will surely have employers scrambling to find ways to cut back on overhead, this adds a new wrinkle and the potential for liability on the pension plan that was supposed to give employees the ability to have control over their retirement destiny.  How do you as an employer protect yourself without giving up your plan?

• Talk with you pension administrator. Ask him or her to review your plan and provide you with a recommendation, in writing, on how you can best distance yourself from the investment decisions.

• Provide choices. Make sure that is the plan offers a wide array of choices, and  employees are able to contact the investment company directly for advice and information.

• Maintain records and notes. These may be one of your best resources one day down the road if a participant challenges you.

To read about the Supreme Court’s decision, go to www.ChiroEco.com/401k.

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