The Potential Liability of Participant Directed 401(k) Plans

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As children, we were told the story of Jack and The Beanstalk. Jack sells a cow for some “magic beans” and his mother is so angry, she throws the beans on the ground and a magic beanstalk grows overnight. When it comes to plan sponsors being given the opportunity to sponsor a 401(k) plan that allows for participant direction, they were sold some “magic beans” and told that they were shielded from liability for participant’s investment losses. While those “beans” won’t turn into a beanstalk, they could lead to some unexpected liability. This article is about the hidden liability of ERISA §404(c) participant directed plans and how to avoid that potential liability as a plan sponsor.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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