Stephen Schurr writes an interesting article for The Street.com: "The Seven Deadly Sins of 401(k) Plans." I concur with Mr. Schurr's comments regarding the lack of clear guidance for plan fiduciaries of 401(k) plans. The article quotes Don Trone, president and founder of the Foundation for Fiduciary Studies, a nonprofit group that offers training for retirement plan sponsors and providers, as stating:
"If the chairman of a company's 401(k) committee called the Department of Labor and asks, 'What should I do to make sure I fulfill all my responsibilities?' There would be no answer, other than act prudently," Trone said. If the same chairman then hired an investment adviser to handle the 401(k) plan and "the adviser calls the Securities and Exchange Commission and asks the same question, there would be no real answer," Trone said. "The industry has never defined the details of a prudent investment process of fiduciaries."
Comment: It is important to note that the courts have provided some guidance in this whole area, by emphasizing that ERISA fiduciaries must engage in prudent process and procedures in order to fulfill their fiduciary obligations under ERISA. The In re Unisys Savings Plan Litigation case (173 F3d 145 (3rd Cir.), cert. denied, 120 S. Ct. 372 (1999), is a good example. In that case, the plan fiduciaries had invested in Executive Life GICs as an investment for one of its funds, but were held not to have violated their fiduciary duties when the GICs became worthless because the court found that they had engaged in prudent conduct in selecting the investments. (An example of some of the prudent processes mentioned by the court in Unisys: the fiduciaries had hired an experienced investment consultant, and, in evaluating potential insurance companies from which to purchase GICs, had obtained information and ratings from Standard and Poor's and A.M. Best ratings services that evaluated the stability and potential profitability of the various types of companies. There was also testimony that the fiduciaries had kept abreast of developments in the GIC industry by reading trade publications and journals and that they had available to them SEC forms 10K and 10Q to review prior to making their selection.)
Despite the lack of clear guidance, it is important for ERISA plan fiduciaries to become educated as much as possible and engage in prudent process and procedures in fulfilling their duties and responsibilities under ERISA.
More on the Chao v. Enron Corporation et al. lawsuit filed yesterday . . .
Kirstin Downey for the WashingtonPost reports: "Restitution Sought From Enron Officials." The article quotes Marc Machiz, a former Labor Department lawyer in charge of pension programs, as stating that "the lawsuit could have ramifications for the "30 to 40" private lawsuits moving through the courts that allege that executives exhorted workers to buy stock that subsequently fell in value." The article quotes Mr. Machiz as stating further that workers at many other companies were hurt as badly or almost as badly as at Enron, including those at WorldCom Inc., Global Crossing Ltd., Williams Cos. and Dynegy Inc.
The Associated Press for the Boston Globe reports in this article: "US sues Enron over pension losses: Ex-executives, directors also targeted in attempt to recover millions."
I am reviewing the DOL Enron complaint filed yesterday and will report on it here shortly. In the meantime, you can read more on the lawsuit here . . .
That's the advice in this article--"401(k) trustees feel heat"--by Harriet Johnson Brackey for the Miami Herald. Derek Loeser, a partner in the Seattle law firm Keller Rohrback, in discussing ERISA plan fiduciaries states: "[t]heir duty as fiduciaries is the highest known to law. This should remind them they can't operate on autopilot.'' Thomas Noonan, president of Union Financial, a registered investment advisor in Fort Lauderdale, warns that "especially at smaller companies, the 401(k) plan trustees often rely blindly on an investment advisor." A good time for ERISA fiduciaries to consider this . . .
While it is always important for a plan fiduciary to have an ERISA attorney involved in advising them about their fiduciary duties under ERISA, CFO.com does provide some very good online resources and tools for ERISA plan fiduciaries: this 401(K) Checklist for Fiduciaries, and this article delving into why employees file lawsuits against their employers over their 401(k) plans, as well the this very handy Buyer's Guide to 401(k) Plan Providers. The Guide allows users to compare the different providers and links allow the user to visit, from the online guide, the different websites of the various 401(k) providers.