Participants in 401(k) plans are protected by the Employment Retirement Income Security Act (ERISA) against malfeasance and procedural errors of the ERISA fiduciaries for those retirement and other benefit programs. ERISA imposes fiduciary duties and liability for their breach, but ERISA does not impose strict liability for losses that are outside of the fiduciary’s control. This means criminal theft of money from those accounts is not covered by ERISA fiduciaries. Other financial laws protect consumers against theft from banks, such as the Electronic Funds Transfer Act (EFTA), and against insolvency, such as the Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC). These do not apply to 401(k) plans. As criminal attacks on 401(k) plans increase, some ERISA fiduciaries have declined to reimburse for criminal losses. If this is a trend, participants and IRA investors should consider a crime insurance policy until a regulatory solution fills the gap in protection.
Author: Harold Weston, JD, CPCU, is clinical associate professor and WSIA Distinguished Chair in Risk Management and Insurance, at Georgia State University, Robinson College of Business, with secondary appointment in the Georgia State University Law School.
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