Participant Loans: A Fiduciary Storm Brewing?

401(k) Loan Defaults Represent a Rising Level of Risk.

Bruce Ashton, a partner at Drinker Biddle & Reath, believes that 401(k) loan defaults represent a “fiduciary storm brewing.” According to Mr. Ashton, plan sponsors may have a false sense of security about the fiduciary risks of 401(k) loans, not realizing that under ERISA, participant loans must be managed with the same prudence and oversight required of any plan investment.

“Even with what appears to be thorough disclosure, how can a plan sponsor “prudently” facilitate access to loans, when a loan can wipe out retirement benefits for so many borrowers? While the level of risk may feel like it’s off on the horizon, it isn’t hard to see that the tide may be coming in.”

-Bruce L. Ashton, Partner, Drinker Biddle & Reath LLP

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