ERISA Law
When a “financial professional” gives advice (for a fee), or trades a “held away” 401k account, they become an “ERISA Fiduciary”.
As an ERISA Fiduciary, one must follow all of the rules and regulations from the Department of Labor (DOL) and possibly use a Prohibited Transaction Exemption (PTE) if necessary .
The courts have recognized being an ERISA Fiduciary as “the highest duties known to law” - Donovan v. Bierwirth
The DOL has stated on their website, “The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.”
In 1974, ERISA was written into law to protect participants in Defined Benefit (pension) plans.
The 401k as we know it did not exist until 1981!
Many advisers shunned the ERISA requirements and have advised and traded “held away” 401k accounts while never complying with ERISA.
Many advisers don’t even know their duties required under ERISA.
However, in the past, there was not much “legal” worry for the advisors.
This all changed in 2008!
LaRue v. DeWolff, Boberg & Associates, Inc, put all advisors on notice.
For the first time, the Supreme Court ruled that an individual had the right to sue their advisor, for breach of fiduciary duty, and to recover any losses due to the alleged breach.
The courts recognized that Defined Contribution plans, like the 401k, were participant driven, and each participant would be granted the right to sue.
If an adviser knowingly (or unknowingly) breaches their duties under ERISA, they can be held personally liable for restoring the losses, returning any fees, paying an excise tax to the IRS, and any other remedy the court deems!
The plaintiff does not need to prove the advice was “unsuitable” or not in their “best interest”.
They just need to prove the adviser breached their duties as prescribed by ERISA and the DOL.
And many advisers do not know what their duties are under ERISA!
This is why the largest financial institutions in the country DO NOT provide advice to “held away” 401k accounts!
This provides a tremendous opportunity for the independent advisers that understand and follow ERISA law.
They can literally thrive where the largest institutions cannot!