Document The "Thought Process" To Help Limit ERISA Liability

Invesco Holding Co. agreed to pay $3.47 million to settle a lawsuit by participants in the company's 401(k) plan, who alleged ERISA violations.

The settlement of the class action lawsuit requires court approval. It is based on the lawsuit filed in May 2012, in which participants accused the plan executives of violating their fiduciary duties by stocking the plan with proprietary investment options and restricting investments in the plan's self-directed brokerage feature.

Defendants include several Invesco affiliates, subsidiaries, and executives who manage the 401(k) plan and provide products and services to it.

A federal judge granted Invesco's motion to dismiss the case in September 2019 but allowed the plaintiffs to file an amended complaint. The settlement was reached while the plaintiffs were preparing the amended complaint.

In addition to the settlement payment, Invesco has agreed to "modify the self-directed investment account" so participants can purchase non-proprietary exchange-traded funds. The Invesco 401(k) Plan, Atlanta, had assets of $975 million as of Dec. 31, 2018, according to the latest Form 5500 filing. "Invesco settles 401(k) ERISA case for $3.47 million" (Mar. 11, 2020).


Employers who act as plan administrators owe fiduciary duties to plan participants to act in ways that are always both substantively and procedurally prudent. When it comes to choices of investment options, an administrator is not required to be omniscient, but is required to be reasonable and prudent in the execution of its duties.

One way to bolster your defenses is to thoroughly document the thought processes which led to the choices now being examined.

One of the first parts of the documentation process is to review and, if necessary, revise the plan’s investment strategy to make sure it aligns with your business needs. This plan, which is created by the 401(k)-plan manager, acts as a roadmap to running the plan. If your 401(k) plan is not serving you and your employees the way you wanted it, request a plan review from your adviser.

Once the plan is established, all decisions flowing from that plan should be well documented. This includes the process used to solicit bids from plan administrators to the choice of investments offered, to the fees being paid to manage the plan. The plan should include key dates for filing paperwork and for regular review of all documents and employee information.

While no amount of planning can guarantee your plan will not be subject to criticism and scrutiny, or even legal challenges, following certain basic best practices may go a long way to mitigating such possibilities.

Distribute employee disclosures and disperse employee distributions promptly. Educate your employee base on the importance of participating in the plan—or consider an adviser who specializes in retirement education.

Meet annually with your 401(k)-plan committee (or plan stakeholders) to review the plan and confirm that it is working the way it was intended. You should take copious notes during your 401(k) committee meetings and keep those as documentation of your management process.

Of course, file all required forms with the IRS annually, cover your plan with a fidelity bond, and retain copies – including all early drafts - of all plan documents.

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