Monday, May 5, 2008

Hidden 401K Fee Suits All the Rage

401k_2 The rage of the defense bar, that is. The National Law Journal reports (subscription required):

Congress and the U.S. Department of Labor are taking a hard look at so-called hidden fees in 401k retirement plans — but not as hard as the look taken by plaintiffs' firms that are suing corporations for allegedly failing to protect their employee's nest eggs.

At least 12 cases have been brought by Jerome J. Schlichter of Schlichter Bogard & Denton in St. Louis, alleging that plan sponsors such as Boeing, International Paper and Caterpillar neither examined nor disclosed to plan participants fees that are split among service providers. The suits are brought under the Employee Retirement Income Security Act of 1974 (ERISA) . . . .

Plaintiffs call the fees "hidden" because the management fee that participants see is often a lump sum that includes the costs of separate services by different providers, making it difficult for participants to compare costs among similar plans.

Defense attorneys believe plaintiffs will have a difficult time proving a company's negligence over excessive 401k fees, even if the company could have paid plan administrators less.

"It becomes a battle of experts,'' said Nancy G. Ross of McDermott, Will & Emery in Chicago, who is defending Northrop in two class actions. "Just because one expert would have done it differently doesn't prove the plan administrators did it wrong. Negligence is very hard to prove in the ERISA world.''

Perhaps Ms. Ross is engaging in wishful thinking in light of the Supreme Court's decision in LaRue, which makes breach of fiduciary suits in the 401(k) context all the more likely, and potentially easier to prove.


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» Excessive Fee Litigation: A Real Problem or An Imaginary One? from Boston ERISA Law Blog
Here's a piece passed along by the Workplace Prof, noting the rise in excessive fee litigation under ERISA. I have noted before that the combination of demographic and economic factors with the ruling in LaRue is going to create more... [Read More]

Tracked on May 7, 2008 7:18:49 AM


I don't get it. Putting aside new labor department regulations that may substantively regulate how service providers disclose conflicts of interest and any proposed legislative changes, if the total amount of fees are disclosed, what's the problem? ERISA doesn't require fiduciaries to get the "best" price or "best" options for anything (we've all had health plans we've been unhappy with; or maybe a 401(k) options that didn't have daily trading or daily valuation). All ERISA requires is that expenses be reasonable (and, the Labor Department has issued regulations that explictly say "reasonable" does not necessarily mean "cheapest"). If the aggregate fees are in line with what retail customers are paying, how is that unreasonable? And if aggregate fees are disclosed, how is anything "hidden" or why does that matter? It seems like the only things these lawsuits accomplish is pushing up the cost of fiduciary insurance---now that's a plan fee increase I'd rather not pay.

Posted by: anon | May 8, 2008 9:20:35 AM

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