Retirement Plan Lawsuits Swamp Small Business Owners. Is Your Company Safe?
Plummeting stock markets have exposed fraud and error at every level of the financial system leaving a trail of angry investors in their wake. The latest boondoggle is a wave of lawsuits launched against small business owners. An increasing number of businessmen are being sued by their employees who are seeking payback for shrinking 401(k) balances. Lawsuits against plan trustees are cropping up for several reasons:
Poor investment selection — i.e. your plan
• doesn't offer enough choices or diversification
Not allowing participants access to self-
• directed accounts
Failure to disclose plan-related documents to
• participants and their beneficiaries
Failure to comply with employees' investment
Supreme Court Rules in Favor of Disgruntled Employees. How serious is it? The U.S. Supreme Court recently ruled on a case that is widely thought to be a watershed development. In LaRue v. DeWolff, Boberg & Associates, Inc. an employee claimed that his 401(k) trustee neglected to follow his investment instructions, resulting in a lower account balance in his 401(k) account. The Court held that Mr. LaRue, if indeed harmed
by the inaction of the plan's fiduciaries, could sue for relief under the Employee Retirement Income Security Act of 1974 (ERISA). If that doesn't send shivers down your spine then you might want to check your pulse, better yet, check in with a qualified tax attorney to make sure your business's retirement plan is totally compliant. Even if you rely on an outside administrator to file and archive plan-related documents, you can be held accountable for their mistakes.
Is Your Inherited Retirement Plan Safe? Another major problem is rearing its head as Baby Boomers begin to retire. It has to do with Inherited IRAs, which can be a tremendous source of family wealth or family heartache. Think yours is safe? Think again. The Supreme Court has ruled that IRAs are only protected in the context of bankruptcy proceedings and even then, only under certain provisions of the law. This little-known fact makes them a tempting target for financial predators and those who seek a claim on your wealth. Let's say you inherit an IRA from your father and you take just a small amount of that inheritance and buy a sports car. One night, you're on your way home and get into an accident. The car you hit was being driven by a heart surgeon. He claims you injured his hand and he will never operate again. If he sues you and wins and your insurance company doesn't cover the claim that leaves your IRA completely exposed. This could happen to anyone. But luckily there's a way to make sure it doesn't happen to you. Structure your retirement plan the right way. Don't take any shortcuts. For maximum protection, take it offshore. In addition to peace of mind, you'll gain greater investment flexibility, diversify out of the dollar and keep it away from those who want to grab it.