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Employer: Is Your 401(k) Putting You at Risk?

by Caldwell Trust

401klrThis week, the Supreme Court decided a case that should put all employers on alert in regards to their responsibilities as plan sponsor and trustee of their 401(k) plan. The decision was unanimous and said plan administrators must continuously “monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments from the outset.”


The case involves claims that a company, Edison International, violated its fiduciary duty when the mutual funds offered in its 401(k) plan had higher expenses than identical funds. The claim stated that the employer chose to use retail share classes when it could have switched into institutional shares which have lower expenses. The decision expands the time limit for investors to sue beyond the standard six-years, stating plan sponsors need to continuously monitor investments. It also established principles that plan administrators must follow as fiduciaries – to act with “care, skill, prudence and diligence”.

So what does this mean for employers? This opens the door for future law suits, so employer beware. Most employers serve in the plan sponsor and trustee role but most do not realize it. Employers tend to think the plan provider and the TPA have these responsibilities, which is not true in most cases. Employers are putting themselves at risk without knowing it and without having a plan to deal with it.

What can you do as an employer? Take action by checking your plan document to verify who serves in what capacity. If you are named as the trustee there are a few options to consider. First, if you want to remain in this role then you must establish processes to mitigate your risk. Talk to your plan provider for details. Your second option is to delegate this duty to a professional third party who can serve as the trustee and greatly reduce the employer’s risks.

Caldwell Trust Company serves as trustee for all of the 401(k) plans we administer. In that role, we are responsible for creating the investment policy, selecting the investments and monitoring the investments continuously. We remove this responsibility from the employer and put processes in place to assure the plan is compliant.

Employers need to ask themselves one question: Are you a 401(k) expert? If not, then you should consider the risks you are exposed to and find a partner that can help.

About Caldwell Trust Company

Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $820 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.


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