Magazine article The CPA Journal

Employer Liability under 401(k) Plans

Magazine article The CPA Journal

Employer Liability under 401(k) Plans

Article excerpt

Since 1994, it has been generally accepted that employer sponsors of Sec. 401(k) plans have broad protection from lawsuits brought by employee participants in such plans under the Employee Retirement Income Security Act of 1974 (ERISA). It has been understood that employee participants would be unsuccessful in lawsuits brought against employer sponsors due to investment losses suffered by the participants in investment options selected by the employers if the participants a) were offered at least four investment options with a wide range of investment goals, and b) had the opportunity to change their investment selections at least four times per plan year.

It appears, however, that such a broad interpretation of the protection afforded to employers under ERISA is now unfounded. Based on a recent court case, employers can be required to pay money damages when participants lose money in their Sec. 401(k) plans. In the case of Meinhardt vs. Unisys Corp. (Unisys), the Third Circuit Court of Appeals (court) held that the employer could be potentially liable for such losses where the employer does not provide Sec. 401(k) plan participants with enough information about the investment options for them to make informed decisions concerning the risks inherent in investing in certain investment contracts and where the employer does not exercise prudence in selecting investment options. …

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