Investment limitations happen.

The Mistake

A company’s 401(k) plan is managed by a third party. This third party only offers three aggressive investment selections. The value of these plans dropped significantly due to unforeseen economic news. A group of employees brought suit against the company, claiming that it chose a 401(k) administrator that did not provide adequate choices, and offered too few conservative investment opportunities.

The Consequence

Defense costs: $115,000
Indemnity: $70,000
Total costs: $185,000

The Avoidance

  • Use third-party 401(k) administrators that provide an array of investment selections and risk diversity.
  • Educate your employees about diversification and personal tolerance for risk.
  • Get signed “hold harmless agreements” from employees stating they understand the risk they’re taking and have read the investment prospectus.