Suit Says Fiduciaries of $700 Million 401(k) Fell Short

Suit Says Fiduciaries of $700 Million 401(k) Fell Short




A new excessive fee suit challenges the imprudent selection of share classes, the poor selection of a stable value offering AND exorbitant recordkeeping fees.

Here we have one participant-plaintiff Robert  Humphries suing based on the actions (or lack thereof) of the fiduciaries of the $700 million (4,600 participant) Mitsubishi Chemical America Employees’ Savings Plan, specifically the plan sponsor entity itself (Mitsubishi Chemical America, Inc.), “each member of the  Board of Directors of Mitsubishi Chemical, the Plan’s Administrative Committee,” and even “Kitty  Antwine, who was the signatory to the Plan’s annual Form 5500 filed under sections 104 and 4065 of  ERISA and sections 6057(b) and 6058(a) of the Internal Revenue Code”—as well as “John/Jane Does 1-10”—unnamed, but allegedly involved in the “management, operation and administration of the Plan.”[1]

‘Basic’ Claiming

More specifically, the suit (Humphries v. Mitsubishi Chem. Am., Inc., S.D.N.Y., No. 1:23-cv-06214, complaint 7/19/23) alleges that “the fiduciaries to the Plan failed to meet their fiduciary obligations in several basic ways”:

  • First by offering and maintaining “higher cost share classes when identical lower cost class shares of the same mutual funds were available,” which the suit says “is one of the most common and well-known example of an imprudent investment decision.” 
  • Secondly, the suit claims that the defendants “wasted participants’ money by failing to appropriately select and monitor the Plan’s stable value fund” when “substantially similar products were available from other providers that would have provided far higher returns to the Plan participants.” 
  • Thirdly, the suit claims that the defendants failed to monitor the Plan’s fees and expenses, and that “as a result, the Plan kicked back payments to recordkeepers and other non-parties from the retirement savings of Mitsubishi Chemical’s employees in excessive amounts.”

The suit takes pains to point out that “plaintiff is not merely second-guessing Defendants’ investment decisions with the benefit of hindsight. The information Defendants needed, to make informed and prudent decisions, was readily available to them when the decisions were made.”


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Are Employers Required to Match in a 401k?

401k Match

Employers are not required by law to offer matching contributions in a 401k plan. However, many employers choose to do so as a way to encourage employee participation and help employees save for retirement.

If an employer does offer a matching contribution, the terms of the match can vary. Some employers match a percentage of the employee's contributions, while others may match a specific dollar amount. Additionally, there may be restrictions on when the matching contributions are fully vested, meaning when the employee has full ownership of the funds.

It's important to carefully review the terms of your employer's 401k plan to understand if and how they offer a match, and if there are any conditions or restrictions on the matching contributions. If your employer does offer a match, it's generally recommended to contribute at least enough to receive the full match, as it is essentially free money that can help grow your retirement savings faster.

What are the Loan Provisions of a 401k?

Loan Provisions

A 401k plan is a retirement savings plan sponsored by an employer that allows employees to save a portion of their income before taxes are taken out. While contributions to a 401k plan are meant for retirement, the IRS allows certain provisions for borrowing or withdrawing funds under certain circumstances.

The loan provisions of a 401k plan allow an employee to borrow a portion of their vested account balance, up to a maximum of $50,000 or 50% of their vested account balance, whichever is less. The loan must be repaid with interest, typically within five years, although longer repayment periods may be allowed for loans used to purchase a primary residence. The interest rate for the loan is usually tied to the prime rate and may be slightly higher than the current prime rate.

It's important to note that not all 401k plans allow for loans, and even those that do may have specific rules and limitations, so it's important to check with your plan administrator for details.

In addition to loans, a 401k plan may also allow for hardship withdrawals, which are withdrawals made from the plan due to an immediate and heavy financial need, such as medical expenses, funeral costs, or the purchase of a primary residence. Hardship withdrawals may be subject to income taxes and a 10% penalty if the employee is under age 59½.

It's important to remember that while loans and hardship withdrawals may provide a source of short-term financial relief, they can have a significant impact on an employee's retirement savings, as they reduce the amount of money that can continue to grow tax-deferred in the account. Therefore, it's generally recommended that these options be used only as a last resort after all other options have been exhausted.

Can I Make Roth Contributions in a 401k Plan?

Can I Make Roth Contributions in a 401k Plan?

Yes, some 401k plans offer a Roth option that allows you to make after-tax contributions. These contributions are then invested and grow tax-free, and you won't have to pay taxes on the money when you withdraw it during retirement.

However, not all 401k plans offer a Roth option, so you should check with your plan administrator to see if it's available. Also, there are limits to how much you can contribute to a Roth 401k each year, just like with traditional 401k contributions. In 2023, the annual contribution limit for both traditional and Roth 401k contributions is $22,500, with an additional catch-up contribution of $7,500 for those age 50 and older.

What is the Difference Between a Simple IRA and 401k?

Simple IRA vs. 401k

A Simple IRA (Savings Incentive Match Plan for Employees) is typically used by small businesses with fewer than 100 employees. It allows employees to contribute a portion of their pre-tax income to the plan, up to a certain limit, and employers are required to make either a matching contribution or a non-elective contribution. Contributions to a Simple IRA are tax-deductible, and the money grows tax-deferred until it's withdrawn in retirement. Simple IRA plans have lower contribution limits than 401k plans, which can make them a good choice for small businesses that want to offer retirement benefits without incurring high administrative costs.

A 401k is a retirement savings plan offered by larger employers. It allows employees to contribute a portion of their pre-tax income to the plan, up to a certain limit, and employers may also make contributions to the plan. The money in a 401k grows tax-deferred until it's withdrawn in retirement, and contributions to a 401k are tax-deductible. 401k plans typically have higher contribution limits than Simple IRA plans, and some employers may also offer matching contributions, profit-sharing contributions, or other incentives to encourage employees to save for retirement.

In summary, while both a Simple IRA and a 401k are retirement savings plans, the Simple IRA is typically used by small businesses with lower contribution limits and required employer contributions, while the 401k is more commonly offered by larger employers with higher contribution limits and optional employer contributions.


What is a Cash Balance Pension Plan?

Cash Balance Pension Plan

A cash balance pension plan is a type of defined benefit retirement plan that combines features of both traditional pensions and defined contribution plans. In a cash balance plan, the employer contributes a set percentage of each employee’s compensation into an individual account, similar to a defined contribution plan.

However, the employee’s account balance is based on a predetermined formula that calculates the hypothetical balance of a traditional pension plan, with a guaranteed rate of return. This formula typically takes into account the employee’s age, years of service, and salary history.

The employee is guaranteed to receive at least the vested portion of their account balance, which accrues over time, and can receive a lump sum payout or an annuity payment upon retirement. Unlike traditional pensions, which typically provide an ongoing stream of income throughout retirement, cash balance plans typically provide a single distribution at retirement.

Cash balance plans are regulated by the Employee Retirement Income Security Act (ERISA) and are typically offered by employers as a way to provide retirement benefits to their employees while managing the risk and cost associated with traditional pension plans.


What is a Solo 401K?

Solo 401K

A Solo 401k is a retirement savings plan designed for self-employed individuals or business owners who do not have any full-time employees, other than themselves and their spouse. Also known as a one-participant 401k, it operates similarly to a traditional 401k plan, but with some distinct differences.

With a Solo 401k, you can make contributions as both the employer and the employee, allowing you to save more money for retirement compared to other self-employed retirement accounts like a SEP IRA or a SIMPLE IRA. As the employee, you can contribute up to $19,500 in 2021 and 2022, and if you are over 50 years old, you can make an additional catch-up contribution of $6,500. As the employer, you can contribute up to 25% of your net self-employment income up to a maximum of $58,000 in 2021 and 2022.

Solo 401k plans offer several benefits, including tax-deferred growth, flexible contribution options, and the ability to borrow against your retirement savings.


What is a New Comparability Profit Sharing Plan?

New Comparability Profit Sharing Plan

New comparability profit sharing is a type of profit sharing plan that allows employers to allocate a larger percentage of the company's profits to certain employees, typically higher-paid or key employees, compared to a traditional profit sharing plan.

In a new comparability profit sharing plan, the employer groups employees into different categories based on their compensation levels, job titles, or other factors. Each group is then assigned a different percentage of the company's profits to be allocated as contributions to their retirement accounts.

For example, the employer may assign 10% of profits to a group of executives earning $200,000 or more per year, while assigning only 5% to a group of administrative staff earning less than $50,000 per year.

This type of plan can be attractive to employers who want to reward and retain their top-performing employees, while still offering some level of retirement benefits to all employees. However, it can also be complex to set up and administer, and may require the services of a financial professional or retirement plan expert.

What is a Profit Sharing Plan?


Profit Sharing Plan

A profit sharing plan is a type of retirement plan in which an employer contributes a portion of its profits to a pool of funds that is distributed among eligible employees. This type of plan is designed to incentivize employees to work towards the success of the company, as they stand to benefit from the company's profits.

In a typical profit sharing plan, the employer determines how much of the company's profits will be contributed to the plan, and then allocates that amount among eligible employees based on a predetermined formula. The formula may take into account factors such as an employee's salary or length of service with the company.

The funds contributed to the plan are typically invested, and employees may be able to choose from a selection of investment options. The funds grow tax-deferred until the employee withdraws them, typically at retirement.

Profit sharing plans can be a valuable tool for employers to attract and retain talented employees, as well as to motivate them to work towards the success of the company. For employees, profit sharing plans can provide a valuable source of retirement income, as well as a sense of ownership and investment in the success of the company.

What is a Safe Harbor Plan?


Safe Harbor Plan

A safe harbor plan is a type of retirement plan designed to help employers comply with certain non-discrimination requirements set by the IRS. These requirements prohibit highly compensated employees (HCEs) from receiving disproportionate benefits or contributions compared to non-highly compensated employees (NHCEs) in a 401k or other qualified retirement plan.

By adopting a safe harbor plan, an employer can automatically satisfy certain non-discrimination testing requirements and avoid costly penalties that can arise from failing to meet these requirements. Safe harbor plans offer several benefits, including:

  1. Enhanced contribution limits for HCEs: In a safe harbor plan, HCEs can make larger contributions to their retirement accounts without worrying about violating non-discrimination rules.

  2. Reduced administrative burden: Safe harbor plans typically have fewer administrative requirements than traditional 401k plans, which can save employers time and money.

  3. Greater employee satisfaction: Safe harbor plans can be designed to provide generous matching contributions, which can help attract and retain talented employees.

Overall, safe harbor plans can be an effective way for employers to offer a valuable retirement benefit to their employees while minimizing their own administrative burden and legal risk.