A Fiduciary is someone that must put the client or patient’s interest before their own. The best example of a Fiduciary is your doctor. Can you imagine if they didn’t HAVE to put your interest first? They may prescribe a medication because the drug company gives them a vacation every year for doing so, even though that prescription may not be the best solutions to your health problems.
A few years ago NAPFA launched a campaign called “Focus on Fiduciary”. As a NAPFA member I have always put my clients interest first, and signed a Fiduciary Oath indicating that I would do as much. On February 20, 2008 the Supreme Court unanimously struck down a 4th Circuit ruling from 2006 which stated that, 401k plan participants may sue a fiduciary plan administrator to recover losses resulting from a plan administrator’s breach of fiduciary duty, however, the 4th Circuit ruling applied only to breaches that hart the plan participants AS A WHOLE. The new Supreme Court ruling indicates that defined contributions plans such as 401k and profit sharing plan “fiduciaries” can be sued for a breach of fiduciary duty that affects the plan participants as a whole or INDIVIDUALLY.
Yes, this new policy may be a headache for plan administrators, and may cause errors and emissions insurance to skyrocket for administrators, but if there is any good that may come out of this, it is that maybe administrators will offer more, and possible better, choices in 401k plans. If individuals can sue the administrator because the investment options are not in the best interest of the participants, this may open discussions with administrators about offering more options to participants. Of course the reverse could be true, and administrators may offer less options in hopes of avoiding litigation. Either way, it is good because it brings up questions about options in 401k plans. As the author sees it, one in three 401k plans actually offer decent investment choices to participants. This ruling may change that.