Stock Market Volatility and 401 (k) Plans
Many workers today depend on their 401(k) plan to provide them with an adequate income during retirement. For these workers to achieve retirement income security, their 401(k) plan investments must perform well over their working lifetime. Employers’ selection of investment options for the 401(k) plan, a fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), plays a critical role in determining investment performance. In this Article, Professor Medill uses a series of hypothetical litigation scenarios to illustrate how interpretation of the employer’s duty of prudence and duty of loyalty under ERISA present different policy choices for the federal courts. Professor Medill examines various hypothetical situations involving mutual fund fees and company stock where ERISA s duty of loyalty will require the federal courts to determine if an employer has received permissible incidental benefits or engaged in prohibited self-interested conduct when selecting 401(k) plan investment options.
Because employers today rely upon the Department of Labor’s 404(c) Regulations to allow participants to select among plan investment options without incurring potential fiduciary liability, Professor Medill examines various policy issues likely to arise as federal courts interpret the details of the 40 4 (c) Regulations. The Article cautions against judicial interpretations of the 404(c) Regulations that will have a potential chilling effect on voluntary plan sponsorship by employers. The Article also addresses an important exception to the 404(c) Regulations, the automatic enrollment plan. Professor Medill argues for a judicial interpretation of ERISA that encourages employers to select a default investment option for automatically enrolled participants that is broadly diversified in the equity markets, rather than a low-earning money market fund.
The Article concludes by examining the potential remedies available under ERISA for 401(k) plan participants injured by their employer’s breach of fiduciary duty. Professor Medill concludes that, consistent with existing caselaw precedent, federal courts can and should afford injured 401(k) plan participants a remedy under ERISA.