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401(k) & Retirement Plans

Imprudent Investments in 401(k) Plans

Federal law requires those responsible for overseeing 401(k) plans (people or entities called "fiduciaries") to manage retirement plans with the skill and expertise of a prudent investor, not just an ordinary layperson. While fiduciaries are not expected to predict the future, they must monitor the plan’s investment options and make appropriate changes to the plan’s investment menu when necessary. If you believe any of the investment options found in your 401(k) plan are not appropriate or prudent, our experienced ERISA/401(k) attorneys may be able to help.

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Imprudent Investments in 401(k) Plans Details

The Employee Retirement Income Security Act of 1974 (ERISA) imposes a fiduciary standard, the highest standard under the law, upon those responsible for administering and managing your 401(k) plan. This standard requires fiduciaries to select and retain only investments that are appropriate for the plan. Issues may arise when the fiduciaries select inappropriate investments, or if investments later identified as inappropriate because of high costs or poor performance are not timely removed.

At Nichols Kaster, we understand the importance of maximizing your retirement savings, and the role prudent investment options play in achieving this goal. If you believe your 401(k) plan has investment options that are underperforming or expensive, please contact us.

Examples of Imprudent Investments in 401(k) Plans

Although there is no single definition of an inappropriate investment or investment menu, any of the following may be contributing factors:

  • Fees and expenses charged by the investment that are above industry standard;
  • Consistent investment underperformance (i.e., failure to meet its benchmark);
  • Exposure to unnecessary amounts of investment risk associated with certain investment products or asset classes (e.g., gold fund, natural resources);
  • An overwhelming and confusing number of options to choose from in your plan (more than 30); or
  • An investment option is generally not found in similar 401(k) plans.

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