401(k) Rules - 2/26/08
Jeff: In 2008 the stock market has been volatile with the Dow Jones average dropping an enormous amount in the first two months. That scares all of us with money in a retirement plan. Recently the Supreme Court has made it easier to recover damages if your retirement plan is mishandled. Here to discuss this issue is attorney Michael Solomon
Jeff: Mike what happens if your 401k plan drops in value due to a mistake by your retirement plan.
Mike: A recent decision by the Supreme Court has made it easier to protect yourself from mistakes by the plan fiduciaries. In this case the plan participant in a 401k plan directed the plan to make his investments in a certain manner but the employer never followed the directions. The stock market plummeted and the participant lost $150,000.The participant filled a law suit claiming that he was damaged but the Court said that the participant was not entitled to sue as to his personal account. He would only be allowed to sue if the entire plan was damaged. Basically the Supreme court said that rule does not make sense with 401k plans and said an individual can sue the plan directly regarding damages to his own plan account even if the rest of the plan participants were not hurt.
Jeff: This does not seem that much of a victory. He probably spent a fortune in legal fees going to the Supreme Court.
Mike: Well good legal work never comes cheap. However, the federal law that governs retirement plans, ERISA, allows the prevailing party to recover legal fees and other costs at the court’s discretion. However, of course there is no guarantee that you will be awarded attorney fees. Also you need to make sure your law suit is made in good faith or you could have legal fees imposed upon you if you sue and lose.
Jeff: What are some steps people should take to protect their retirement accounts.
Mike: It depends what sort of retirement plan you have. If you are a participant in a defined benefit pension plan, the type of plan that typical promises a monthly annuity when you retire, your benefit is insured by a federal corporation called the Pension Benefit Guaranty Corporation. However fewer and fewer people have that option and most employees only have a 401k plan which fluctuates with the stock market. In order to protect yourself you should do three things:
- Obtain a copy of your summary plan description. This describes in easy to understand language what you retirement plan benefits are and your rights.
- Ask the plan administrator for any information on your different investment options
- Sit down with a financial advisor and make decisions regarding how you want to invest your benefits.
Remember your 401k plan may be your largest asset. Don’t ignore it or it might not be there for you when you retire.
