Don’t be the target of a 401(k) plan suit

Posted on June 15th, 2016 at 9:28 AM
Don’t be the target of a 401(k) plan suit

From the Desk of Jim Eccleston at Eccleston Law LLC:

In May, 2015, the Supreme Court ruled in Tibble v. Edison, 135 S.Ct. 1823 (2015), that plan advisers have a “continuing duty … to monitor and remove imprudent trust investments.” As a result of this ruling, in November, 2015, Boeing paid $57 million to settle a lawsuit related to excessive fees and an improper fund selection process in its 401(k) plan.

In order to avoid potential lawsuits in the future over 401(k) plan recommendations, an advisor should draft a detailed Investment Policy Statement (IPS). An advisor should consider the following:

1.  The IPS should include detailed investment criteria.                                                                   

2.  The IPS should require there to be thorough investment monitoring.                                          

3. The IPS should include a list of the different asset classes.                     

4.  The IPS should allocate the proper roles and responsibilities of those involved in the process of executing the strategy of a 401(k) plan.                                                                                 

5. When drafting the IPS, the plan and investment objectives need to be detailed and reviewed frequently in order to determine if any modifications need to be conducted.

6. The IPS should require that expenses be reviewed comprehensively because it is an adviser’s responsibility to know the true and total cost of the plan and disclose any expenses potentially incurred by clients.

7. Educational investment materials need to be distributed frequently to 401(k) plan participants because it is imperative that clients understand what is happening with their money.

Those are just some examples of what an advisor needs to focus on when drafting an IPS. Drafting an effective IPS can help protect a financial advisors from potential litigation initiated against them by their clients. 

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

Tags: Eccleston, Eccleston Law, Eccleston Law LLC, James Eccleston

Return to Archive

TESTIMONIALS

Previous
Next

Hiring Eccleston Law has been one of the best career decisions I have made and this "investment" to maintain my sterling regulatory record has been returned many times over.  If you are in a situation where you've been unfairly accused, don't hesitate to talk with Eccleston Law. They are the best.

Thomas C.

LATEST NEWS AND ARTICLES

February 21, 2024
SEC Alleges Fraud Against Morgan Stanley and Former Executive in Block Trading Business

As reported by the Wall Street Journal, the Securities and Exchange Commission (SEC) has charged Morgan Stanley & Co. LLC and its former head of equity syndicate desk, Pawan Passi, with a multi-year fraud involving the disclosure of confidential information related to block trades.

February 20, 2024
Challenges Persist: Firms Struggle to Comply with Regulation Best Interest

FINRA's annual report for 2024 reveals a concerning trend among broker-dealers, with numerous instances of violations of Regulation Best Interest (Reg BI).

February 19, 2024
FINRA Flags Violations in 70% of Broker-Dealers' Crypto Communications

During a two-year-old targeted examination, the Financial Industry Regulatory Authority (FINRA) has identified potential violations in 70 percent of broker-dealers' communications about cryptocurrencies.