More On Legal & Compliancefrom The Advisor's Professional Library
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- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
The Supreme Court ruled February 20 that a participant in a 401(k) plan can sue to recover losses in his 401(k) account when the plan sponsor or other plan fiduciary mishandles his account.
In LaRue v. De Wolff, Boberg & Associates, Inc., the Supreme Court focused on section 502(a)(2) of ERISA, a provision that allows participants and beneficiaries to sue for "appropriate relief under section 409" of ERISA, according to The Wagner Law Group in Boston. Section 409, in turn, Wagner explains, provides that any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed on fiduciaries by Title I of ERISA "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach ...."
In the LaRue case, the decision on which was written by Justice John Paul Stevens, a plan participant sought to use these provisions to recover a loss of $150,000 suffered when the plan administrator failed to properly implement his instructions as to how his account should be invested. The decision overturned a ruling by the 4th U.S. Circuit Court of Appeals in Richmond.
Ted Scallet, a partner at Groom Law Group in Washington, which specializes in employee benefits, says the sheer complexity of 401(k) plans as well as more complex demands coming from both participants and plan sponsors could likely spark more lawsuits. However, from what he's seen, "plan sponsors and plan service providers" are making great strides to adhere to their fiduciary obligations. Will this ruling affect advisors' and their roles in 401(k) plans? Scallet says that's a "much trickier issue" because there has been no definitive answer as to whether advisors are fiduciaries under ERISA. "That's a hotly debated issue."