“Keeping Retirement Plans Qualified” in the March issue of Practical Accountant was written just prior to the U.S. Supreme Court decision, LaRue v. DeWolff, in which the Court held that a participant in a defined contribution pension plan may sue a fiduciary under ERISA Section 502(a)(2) when claiming that a fiduciary breach caused a loss of plan assets allocated to the participant’s 401(k) plan account. It was pointed out in the article that employee benefit plan audits have now become not only financial statements, but also compliance audits. The Supreme Court opinion is further indication of that.
Subsequent court opinions will define exactly what LaRue will permit. In fact, earlier this month that began, as the Court of Appeals for the Seventh Circuit in Rogers v. Baxter International allowed a lawsuit to continue brought by plan participants against the company they worked for, and some of the trustees of the 401(k) plan alleging investment was permitted in company stock even though the defendants knew it was a bad deal. The Seventh Circuit cited LaRue as the reason that it allowed the suit to continue.
With investments declining in 401(k) plans and with the LaRue decision to rely upon, I expect that there will be a significant increase in the number of claims made and lawsuits filed with regard to 401(k) plans. Last year, a feature entitled "CPAs as Fiduciaries," in the February issue of Practical Accountant, pointed out that CPA must take particular care when acting as fiduciaries. It is no different when a CPA is involved in some capacity with regard to a 401(k) plan. CPAs must be aware of the scope of the liability of plan sponsors and trustees, and in turn, their possible liability. Therefore, I expect prudent CPA firms auditing and advising on 401(k) plans will be reviewing their engagement practices and procedures in light of the recent case law.
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