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Education | Aug 29, 2021

A Fiduciary Fear: Putting Yourself and Your Plan at Risk

Steven J. Kaczynski, Jr.


In recent years, there has been an alarming increase in retirement plan related lawsuits. They are the product of ever-evolving regulations coming from the Department of Labor as well as increased attention toward company retirement plans coming from planned participant suits and court decisions.

In 2020, there were more than 200 class actions filed under the Employee Retirement Income Security Act (ERISA), an all-time high. It was an 80% increase over 2019 and more than double the number of 2018.

Under ERISA, fiduciaries must act solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them. Failure to comply with these duties can result in:

  • Removal from your fiduciary role
  • Personal liability for plan losses
  • Possible civil penalties and, in certain circumstances, criminal prosecution, fines, and imprisonment

Laws change: So do best practices.

The courts and the Department of Labor (DOL) continue to generate confusing and inconsistent rules that companies, benefit plans and plan fiduciaries must follow.
For example, fiduciary selection and review of target date funds is now one of the hot topics for congress, particularly when the funds are used as the plan’s qualified default investment alternative (QDIA). A letter in early May from the Senate Committee on Health, Education, Labor and Pensions to the Government Accountability Office requested that it conduct a review of target date funds (TDFs).

While some believe these managed funds help inexperienced investors, others believe they amount to a time bomb that holds too much risk near the target retirement date. Much of the discussion on risk is to what extent retirement age participants who invested in TDFs have been affected by market fluctuations as a result of the COVID-19 pandemic.

In another development, the House Ways and Means Committee recently passed by voice vote H.R. 2954 or as it is called, the Secure Act 2.0. This Act would raise the required minimum distribution age from 72 to 75, expand automatic enrollment in retirement plans and permit 403(b) plans to use Collective Investment Trusts (CITs). If finalized, Fiduciaries will be required to handle such plan changes.

Process is critical

What matters most in any plan administration is the process followed, not the decision reached. The best protection plan fiduciaries have against a lawsuit is following a carefully contemplated, consistently applied and well-documented process. Many recent court cases resulting in large settlements have been a result of poor documentation of plan committee deliberations or an inability to show prudent decision-making.

Expertise makes the difference

Today’s complicated rules and changing regulations require an advisor that specializes in retirement plans – rather than a firm which does so on the side. With so much at risk, a Fiduciary Advisor must have the highest level of expertise. They must perform their duties with care, skill, prudence, and diligence.

If you are uncertain about the possible litigation risk associated with your current plan, an audit of your process and plan documents may be needed. Important questions will need to be answered: Are you offering what your participants need to reach their investment goals? Are you offering education, administrative support? Are you sending participants required notices in a timely fashion?

The weight of responsibility can be ominous. Offering a qualified retirement plan comes with great personal responsibility that plan sponsors and administrators must follow to avoid lawsuits or regulatory sanctions. Trying to stay on top of these rules and opinions can be daunting, and failure to do so can be costly.

However, with proper guidance and support from an expert fiduciary, your fiduciary fears should be substantially minimized.

This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.

Steven J. Kaczynski, Jr.


Senior Financial Advisor, Managing Director, Fiduciary Plan Solutions

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