GRATKE WEALTH | Is Your 401k plan potentially subjecting you to lawsuits from your Employees?

Are you aware that human emotion plays a big part, and all be it, a very detrimental part, in the ‘investment decision making process’ of the individual investor to include your employees choosing mutual funds in your company’s retirement plan?

As humans, we use emotion to make most of our decisions, for better, and for worst.

What we do as humans:



Most individual investors, including your employees participating inside of your company’s 401k plan, are dramatically underperforming the returns of the broad market indices as is illustrated in the annual Investor Behavior studies performed by DALBAR, Inc. Recent data reflects the following dismal results:

20-year Average Annual returns ending Dec. 31, 2010:

Average Annual index return                  = 7.70 percent

Average Annual investor return              = 2.60 percent

As a plan sponsor, you are responsible for, and potentially liable from both a corporate and personal net worth standpoint, your employee’s under performance investment as it may be deemed a breach of fiduciary duty as stated by ERISA.

Because of this tremendous investment return underperformance by your employees’, their retirement account balances are far below what they should be over their working careers by hundreds of thousands of dollars. They are not retiring with enough money in their 401k accounts. You could be responsible to make up this short fall in an employee or ex-employee lawsuit.

Just by underperforming the broad markets by 3% to 5% annually, your employees could claim hundreds of thousands of dollars in such lawsuits.

A few graphical representations of our emotions at work that control our investment decision-making ‘process’…. Or lack of process quite frankly.

What is causing this under performance? A Flawed 401k Structure.

Over 90% of traditional 401k plans have flawed design and structure; it is this design flaw that causes your employee to under perform the broad market indices returns.

Is your plan harboring this flawed structure? Most Likely.

If so, you may be responsible for your employees’ sub-par investment performance and exposing your organization, and your personal net worth, to needless lawsuits for this vast under performance. You would certainly have difficulty defending your employees’ paltry returns should you be the subject of a lawsuit. And the lawsuits are growing for both under performance and excess plan fees as laws changed in recent years allowing employees to sue their employers for 401k deficiencies.

 ”People on the whole are not saving enough money to adequately prepare for retirement, and individual investors are dramatically underperforming the market due to irrational behavior.” .Cumberland Advisors

What are the consequences for your organization if employee investment behavior, and the associated vast under performance is not addressed? Lawsuits.

If a lawsuit were to occur, what would be the cost of such action?

  • Increased Legal Fees
  • Lost productivity from key employees, staff
  • Reduced Employee Morale
  • Higher Fiduciary Bonding & Insurance Premiums
  • Potential lost of Personal Net Worth
  • Loss of employee loyalty

These are just a few of the detriments to a potential lawsuit.

 Not sure these lawsuits exist?

Just google 401k lawsuits.

What are your options to rescue and remedy your 401k plan?

1.   Do nothing. Either knowingly or unknowingly, this IS certainly an action, but is sub-optimal by any measure.

2.   Hire our firm to perform a ‘Department of Labor’ level review of your plan to guide you toward corrective measures

3.   Implement corrective measures to repair your 401k plan’s flawed structure. Hire a consulting team that is not paid by a 401k product provider (i.e. Insurance Company or Mutual Fund Company)

What are 401k competitors doing about all this? Not much!


The reason is that literally 90% of all plans follow the same cookie cutter design structure that is largely unchanged from when 401ks first came into existence in late 1980. Frankly, with all of the complex and confusing aspects, documents and service layers, these plans provide great cover to hide generous fees, so the motivation to change has been virtually nonexistent.

“As background, the 401(k) rules from the DOL and IRS are complex. Employers are busy running their companies and have little expertise running a plan. Employees are poorly prepared to know how much to contribute or how to invest their money. Because of these three facts, the financial services industry, Insurance companies and broker dealers have made a killing at the expense of American workers. As a result most 401(k) plans can be dramatically improved to the level of a “great” plan.”

Forbes Magazine, May 31, 2011

There is hope; do not worry.

Allow us to review your plan in three easy steps; it only takes 15 minutes to start the process. Contact us for a free 15-minute consultation. In this meeting we will answer these questions and more.

How much will this cost?

What is the time frame to perform this review?

What company resources do I need to commit?

Is this work confidential?

Have you performed these reviews before?

Who do you work with?

How do you get paid?

Steps to performing the review:

1. Collect plan information

2. Create DOL level review

3. Deliver DOL level review

4. Implement recommendations and communicate upgrades to employees

To schedule your free consultation call or email now

  • 1-888-970-8987

In 15 minutes, together we can begin the process to to put more assets back into your employees’ 401(k) accounts.