Compliance March 29, 2011

Breach Claims against Investment Consultants Allowed to Proceed

March 29, 2011 (PLANSPONSOR.com) – The trustees of a Nevada supply company’s 401(k) plan can proceed with their suit that alleges a plan consultant committed a fiduciary breach by convincing the plan to invest in questionable funds.
Reported by

U.S. District Judge Edward C. Reed of the U.S. District Court for the District of Nevada said the plan trustees “narrowly survived” the plan consultant’s motion to dismiss because there were only a few issues from which the court could find that the consultant was an Employee Retirement Income Security Act (ERISA) fiduciary.

However, Reed did throw out the trustees’ claim that the consultant, Barry Downs, violated ERISA by failing to provide the trustees with plan documents. The court said that only plan administrators are liable under ERISA for failing to disclose plan documents. Western Nevada Supply Co.’s profit-sharing and 401(k) plans brought a lawsuit in 2009 against investment managers for their advice to put money in particular investment options.

The court found there were sufficient allegations that Downs was a plan fiduciary through his capacity as a paid consultant to the plans. The case is Western Nevada Supply Co. Profit-Sharing Plan and Trust v. Aneesard Mgmt., D. Nev., No. 3:09-cv-00737-ECR-VPC.

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