What Is an Employer-Sponsored 401(k) Plan?

Some employers offer an employer-sponsored plan, a benefit offered at little or no cost to the employee. This allows an employee to invest a portion of his or her hard-earned paycheck into a retirement fund before taxes are taken out. Employer-sponsored 401(k) plans are useful to workers because it generally provides them with tax breaks, a hassle-free way to save money, and sometimes even “free” money with matched contributions from the employer.

What Is the Employer’s Responsibility?

According to the federal Employee Retirement Income Security Act (ERISA), companies that sponsor 401(k) plans for its employees have a “fiduciary responsibility,” or a duty of care, to act in the best interest of their employees. This means the company has a legal responsibility to charge the best available rate for investment products and services. The entity that has the fiduciary duty (in this case the employer) is called the fiduciary, while the person or people to whom the fiduciary owes the duty is called the beneficiary (the employees, in this case).

Morgan Stanley Sued Over 401(k) Offerings

A class action lawsuit against Morgan Stanley was filed in August of 2016 with 60,000 workers suing the company over accusations that the corporation mismanaged workers’ retirement plans. As mentioned, employees may be charged a fee for the service offered. However, it is the employer’s duty to ensure the investments are sound and in the best interest of the employees. Like other businesses offering employer-sponsored 401(k) plans, Morgan Stanley had a fiduciary duty to find the best rate for its employees, however, the company offered its own funds without shopping other rates. The plaintiffs allege Morgan Stanley used the 401(k) plans as an opportunity to promote the business and maximize its profits–all at the expense of its employees. The class also claims that Morgan Stanley should have “tremendous leverage” as a financial firm in providing superior investment services and products for its employees.

Do I Have a Case Against My Employer?

You may have a case against your employer if one of the following applies to you and your 401(k) :

  1. You are being overcharged by middlemen fees from your employer. You employer has a duty to ensure fees for administrative services are reasonable.
  2. You weren’t notified of the all expenses associated with the plan. While employers may pass along the majority of plan expenses to its employees, they must disclose this information and break down the fees.
  3. Your employer is not acting prudently. Your 401(k) plan sponsor is required by law to shop around and offer diverse funds at the lowest possible cost.

If you feel your employer has not acted in your best interest while sponsoring your 401(k) plan, you may have a case. Contact The Ruth Law Team at 888-783-8378 to discuss your situation and legal options moving forward. As always, your call and consultation with an experienced attorney is free.