In the benefits world, Kraft Foods is known for much more than mac and cheese.
Recently, former and current participants sued Kraft and other fiduciaries responsible for administering the 401(k) plan for failing to fulfill its fiduciary duty by charging unreasonably high service fees, such as the $3.4 million paid to consultants at Hewitt Associates for record-keeping services in 2004.
At its peak, Kraft's 401(k) plan included 55,000 participants and $5.4 billion in assets.
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After much twisting and turning and decision reversals through several courts, the case (George et al v. Kraft Foods Global) ended in a summary judgement in favor of Kraft — mostly. While Kraft ultimately won the case, the suit brought up important questions about plan administration and operation that plan sponsors at any company can learn from.
BenefitsPro spoke with Jenny Kiesewetter, an employee benefits lawyer, co-founder of Kiesewetter Law Firm PLLC, and adjunct professor of employee benefits at the University of Memphis School of Law. She said there are six important lessons that all plan sponsors can learn from the case:
Lesson 1: Carefully document your fiduciary process, including detailed minutes. Careful documentation can help plan fiduciaries prove that they acted reasonably and prudently during all fiduciary processes.
Lesson 2: Examine your documents. Ensure that all plan documents are appropriately drafted and updated for all pertinent legislation. Ensure compliance with such documents.
Lesson 3: Examine your current plan expenses (including investment fees) and your current service providers. Compare the fees and services to others in the industry to make sure your plan fees are "reasonable." Make sure that you document your examination and analysis and further document any changes to your service providers or plan fees. Make sure that your service providers deliver the appropriate disclosures to you come Jan. 1, 2012, so that you can better understand, monitor and control your plan fees.
Lesson 4: Hire a service provider to handle the plan's certain fiduciary functions. Be aware, however, that although a service provider may take some of the fiduciary responsibility off of the plan sponsor, the plan sponsor must still monitor the service providers to make sure they are acting prudently.
Lesson 5: Make your required disclosures to the plan participants according to the new regulations effective for plan years beginning after Oct. 31, 2011. Make sure that all additional disclosures under ERISA are made as well.
Lesson 6: Establish an ERISA Section 404(c) compliant plan, which would provide a plan sponsor and other plan fiduciaries with protection against liability with respect to participant selection of investment options and any losses incurred by participants who exercise control over their investments, if the plan complies with all of the Section 404(c) requirements. Please note, however, that Section 404(c) compliance does not protect against all fiduciary obligations.
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