Supreme Court sets stage for 401(k) Fee Litigation

Recently, in Hughes v. Northwestern University, the Supreme Court unanimously ruled that 401(k) plan fiduciaries have a continuing duty under ERISA to monitor all plan investments and remove any investment options that are not prudent. 401k plans typically offer participants a menu of choices to invest in mutual funds or index funds that provide a variety of stocks, bonds, and assets. The performance of the chosen investments and the deduction of any associated fees determine how much money the participants will have saved for retirement.

In Hughes, the plaintiff employees who participated in the 401k plan alleged that the plan paid excessive management, administrative and recordkeeping fees for certain types of investment options. For example, the plaintiffs argued that their 401k plan offered retail-class investment funds even though identical institutional-class funds with lower management fees were available. In addition, the plan used multiple recordkeepers, which increased costs.

The defendant plan fiduciaries argued that because the plan also offered cheaper investment options, there was no duty to ensure that higher-cost options were prudently priced. The Supreme Court rejected this defense, which other courts had accepted, and ruled in favor of the employee plan participants. As a result, it is now settled law that 401k plan fiduciaries have a duty to monitor and remove any imprudent investment options from the plan within a reasonable time.

Did Your 401(k) Plan Charge Excessive Fees?

Employees are often given few choices when it comes to their 401(k) or retirement plan. In many instances, plans contain excessive or hidden fees. Brokers and middle-men may be collecting fees which grossly exceed the value of the services provided to plan participants. Furthermore, plan sponsors may be failing to satisfy affirmative obligations to act in the best interest of the plan participants. These excessive fees deprive you of valuable retirement savings. In the past two years, over 150 lawsuits have been filed in federal court alleging the mismanagement of 401(k) plans.

Know Your Rights & Examine Your Retirement Plan

401(k) plan abuses are not without remedy. Federal law prohibits excessive fees and allows you to recover damages from a plan sponsor who violates its fiduciary obligations. There are three common types of fees: investment fees, plan administration fees and individual service fees. Accordingly to a recent Bright Scope report, the average 401(k) plan charges less than 1% in fees, and the largest plans regularly charge less than 0.5% in fees. If your fees are more than this, you may be paying too much.

Employees can look to several factors that might indicate excessive fees, including:

  • High expense ratios for funds in your plan
  • Lack of diversity of investment options such as lower-cost index funds
  • Making unsuitable investments
  • Excessive administrative fees (i.e., recordkeeping) in relation to comparable plans
  • Unnecessary management, advisory or account maintenance fees
  • Churning (excessive trading of assets to generate commissions)
  • Front or back-end load commissions
  • Revenue sharing fees

Employees have a right to request fee and expense information from their employer. The United States Department of Labor’s website provides a closer look at the type of fees that may be relevant to your 401(k) or retirement plan.

Contact Dreyer Boyajian LLP

Get your free and confidential consultation with one of our 401(k) litigation attorneys.

401(k) Mismanagement Attorneys

A securities and financial fraud lawyer can help to protect your rights and recover funds lost as the result of the mismanagement of your retirement savings plan. ERISA 401(k) litigation is generally brought as a class action in order to provide relief to all of the plan participants. For a free consultation, contact Dreyer Boyajian LLP.

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