Three 401(k) plan risks every company fiduciary should know.

• Author: Studdard, Lance T.
• Position: Private companies

Most retirement plan committee members, C-level executives and board members ("company fiduciaries") understand the fiduciary duties set out in the Employee Retirement Income Security Act of 1974 (ERISA). It is less clear whether they understand how these rules can personally impact them. While many company fiduciaries acknowledge ERISA's personal liability provisions, too many refuse to accept that something bad might happen to them--a belief that often leads to inertia.

ERISA fiduciary liability is a real risk for companies large and small, public and private. While it seems new fiduciary risks are reported every quarter, the following identifies three emerging areas of concern.

* 401(k) Fee Lawsuits. Thinking that only large employers and financial services companies will remain targets of these lawsuits could prove costly for private companies for several reasons. First, plaintiffs' firms are businesses and, like other businesses, have something akin to market segmentation. If the first round of these fee lawsuits is successful, look for smaller firms to file similar suits against small and mid-sized private companies.

Second, as lawsuits have focused on plan fees, smaller plans, which often have very high fees, could prove fertile ground for litigation. Third, the scope of future lawsuits probably will involve fees as well as investment performance and vendor relationships, alleging violations of ERISA's prohibited transaction rules.

Finally, small and medium-sized private businesses are thought to be more susceptible to lawsuits involving complicated regulatory schemes. Large employers have implemented a formal benefits committee structure, along with staff assigned to benefits-related issues, and vendor relationships generally receive a high degree of scrutiny. Conversely, small and medium-sized private businesses generally have fewer, if any, staff solely dedicated to benefits issues. They are often less formal in their approach, tending to over-rely on personal relationships with vendors, a tendency that could prove to be a weakness.

* Form 5500. This form includes two schedules, A and C, dealing with plan vendor fees. Schedule A applies to plans investing in insurance products, such as group annuities; Schedule C is more general. As clarified in the Department of Labor's (DOL) Advisory Opinion 2005-2A, all fees and commissions related to plans paid by the insurance company to its employees must be reported in a company's Schedule...