EXPERIENCED SECURITIES REGULATORY LAWYERS
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401(k) Fraud - Are You a Victim?

Today, millions of employees across America, in companies large and small, have the opportunity to save for their retirements through 401(k) plans offered by their employers. With many employers no longer maintaining pension plans, 401(k) plans now offer employees an important, and sometimes their only, retirement planning opportunity.

The Employment Retirement Income Security Act of 1974 (“ERISA”) governs employers in how they offer and administer 401(k) and other retirement plans, pension plans and employee stock ownership plans (“ESOPs”). ERISA protects employees by requiring employers to properly administer their employee retirement plans and to exercise a fiduciary duty to their employees regarding retirement programs.

Under ERISA, employers have several obligations to their employees regarding their retirement programs. Under their fiduciary duty owed to plan participants, employers must make prudent decisions regarding the administrators selected to manage the plan, the fees and expenses charged by the administrators, the investment offerings of the plan and the type, manner and frequency of disclosures to participants about the plan.

Unfortunately, there are instances when employers breach their fiduciary duty to their employees in maintaining a 401(k) retirement plan. There have been instances in which plan administrators have been found to have charged plan participants excessive fees and/or administrative charges.

Employers who change or reduce plan benefits without proper notice to plan participants violate that fiduciary duty.

A plan which offers unsuitable or an insufficient number of investments to plan participants may find itself in violation of ERISA.

An ERISA violation can occur if new employees are improperly denied the opportunity to participate in an employer offered 401(k) plan.

As in any other facet of modern life, employers must protect their employees’ retirement plans from cyber-attacks. Should such an attack occur, the employer could be held liable under ERISA if it was determined that the employer was negligent in failing to properly protect its employees’ 401(k) accounts from that type of incident.

Lastly, and unfortunately, there have been instances in which employers have actually stolen money from their employees 401(k) plans for their individual benefit or that of the company (does Enron ring a bell?). ERISA liability would attach to the employer in such a case.

In short, employees may attribute liability to their employers under ERISA for negligence in the administration of a 401(k) plan, a breach of fiduciary duty owed by the employer to its employees, a lack of fairness in the creation or administration of the plan and the failure to provide proper notice of the plan’s terms.

How Do I Know If My 401(k) Plan is Being Improperly Administered?

There are several warning signs or red flags that may indicate to plan participants that all is not well with their 401(k) plan. Any of these red flags, either individually or taken collectively, may be indicative of problems in the company’s retirement program(s).

  • Has your account statement been sent to you late, arrived on an irregular basis or not all;
  • Do the 401(k) contributions that appear on your paystub not appear or not match the contributions on your 401(k) account statement;
  • Has the balance of your 401(k) account fluctuated or varied in a way that does not match the general securities markets’ performance;
  • Does your 401(k) account statement appear inaccurate compared to other recent account statements you received;
  • Have former employees, now retired, experienced difficulty in accessing funds in their 401(k) account;
  • Have there been frequent changes in the account administrators or managers;
  • Has your company been experiencing financial setbacks;
  • Have the investment options offered by the plan had higher fees compared to other options with lower fees.

ERISA also provides whistleblower protection for an employee who reports improper activity occurring in a 401(k) account or other employer sponsored retirement program. ERISA contains anti-retaliatory provisions protecting employees who notify authorities about irregularities in their employer’s retirement plan.

Does your company offer shares of the company stock as one of the 401(k) investment options? If so, be careful. Concentrating your retirement account in the company stock could have terrible consequences for your retirement account if the company stock suffers a significant decline in price.

The above points to the fact that if you feel your 401(k) plan is being mismanaged, you should contact the experienced securities attorneys at Lubiner, Schmidt & Palumbo for a free consultation to review your 401(k) account and discuss your options. The attorneys at Lubiner, Schmidt & Palumbo can examine your 401(k) account, investigate your employer and the 401(k) account administrator to determine whether or not ERISA has been violated and whether you are entitled to compensated for losses, excessive fees, etc.

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