Reducing the Fiduciary Risks of Participant Loans

Do plan sponsors have a false sense of security when it comes to the fiduciary risk related to 401(k) loans? According to prominent ERISA attorney Bruce Ashton, they may not recognize that participant loans are plan investments and must be managed with the same prudence and oversight required for any plan investment. The risk is heightened by the increased focus on 401(k) plans as a source of litigation, an alarming rate of loan defaults, and a misguided belief that disclosure provides adequate protection.

“Does disclosure satisfy a fiduciary’s obligation under ERISA to “preserve assets in the event of a (loan) default”? The answer is clearly no.”

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

Read Drinker Biddle’s whitepaper here.