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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