Participant litigation v trustees regarding investments?

[Guest mikeymo]

Has anyone seen a participant threaten litigation against plan trustees for the way the profit sharing plan was managed and the resulting losses in '00,01, and 02? This profit sharing plan is managed by the plan trustees (small business owners) but the salary deferrals under the 401(k) are participant directed under the plan's various fund accounts.

There was a law firm in K.C. advertising for plan participants to contact them if they experienced losses in their retirement accounts at work.

The only cases I have been able to find have dealt with employer stock and not challenging the prudence of the plan trustees in asset management.

Thanks for any insight.

[mbozek]

It takes more than losses for three years to have a claim for imprudence given the performance of the financial markets over the same period. By the way what is the return for the last 2 years? The one reported case of a participants lawsuit against a fund for imprudent investment in the 1987 crash was dismissed without a trial because the plaintiff could not provide any evidence that the fund performed worse than other similar types of funds.

[Guest mikeymo]

This company's p/s returns have been outperforming the benchmark indexes so that is not a problem. It just seems like a lot of work and added responsibility they have to the plans participants and beneficiaries when they could attempt to put an extra 'fire wall' in and shift some of it back under 404©.

I was also curious if all of those big bucks spent by plaintiff's attorneys had any return on investment on those big ads they were running.

I appreciate your insight as always on these boards.

[QDROphile]

So you think it is better to dump investment responsibility on persons who are not capable of good investment decisions? The result is that the retirement benefits will be smaller than if the investments were managed properly. A company that has a retirment plan probably would like to see larger rather than smaller retirement benefits for its employees. Better that the plan take away participant direction altogether and have the fiduciaries be responsible for investing all the assets.

[Jon Chambers]

I've personally been involved as an expert witness in two ERISA cases related to prudence of investment management, where trustees or a committee manage the fund. The first case was a market timing case, the second related to the hiring of an investment manager. Mbozek's comments notwithstanding, it took far less than three years before participants raised claims of imprudence--in the first case, it was mere months after the market timing decision, in the second case, it took about a year.

The first case settled, so you won't find much on it. The second case is ongoing, but will probably settle. The first case was a moderate sized plan--approx 1000 participants. The second case was a very small plan--approx 15 participants.