Plan sponsors have a duty to decide for the exclusive benefit of the participants and thier beneficiaries. This duty extends to knowing and understanding all fees in their qualifieds retirement plan.
The hope is that, as employees ask questions about the new fee statements, employers will be motivated to negotiate the best deal they possibly can. In about a dozen lawsuits, St. Louis attorney Jerome Schlichter alleges that major companies haven’t always done that.His latest suit, filed last month, is against Minneapolis-based investment firm Ameriprise Financial. The suit accuses Ameriprise of investing 401(k) money in its own RiverSource mutual funds despite high fees and sometimes lagging performance.
Ameriprise also “used the retirement assets of Ameriprise employees to seed new and untested mutual funds, which made those funds more marketable to outside investors,” the suit alleges. It says Ameriprise employees lost more than $20 million.
Schlichter says the allegations are similar to those that his firm made against General Dynamics and Caterpillar, both of which had subsidiaries that managed their 401(k) plans.
“They must operate for the exclusive benefit of employees and retirees, and they can not operate for their own benefit in any way,” he said. Schlichter reached out-of-court settlements with General Dynamics for $15.15 million and Caterpillar for $16.5 million. Several other 401(k) cases are still in the courts, including one against Kraft Foods that is scheduled for trial next month.
Schlichter portrays his suits as a way of cleaning up an overpriced and opaque industry, but some consultants doubt they’ll have much effect.
Patrick Shelton, managing member of Benefit Plans Plus in Creve Coeur, believes the class-action approach “doesn’t help plan participants at all.”
Dan Weeks, founder of 401(k) information firm BrightScope, thinks the threat of lawsuits may motivate large companies to keep a closer eye on 401(k) fees, but smaller employers probably don’t have to worry about class-action suits.
“I hope that the market becomes more transparent through disclosure rather than through litigation,” Weeks said.
Hidden costs in 401(k) plans can prevent many Americans from successfully retiring.
Please comment or call to discuss how this affects you and your employees.
- Ameriprise workers sue over company’s own 401(k) funds (401kplanadvisors.com)
- 401(k) study: Help can improve performance by 3 pct. (401kplanadvisors.com)
- The Search for a Better 401(k) Plan (401kplanadvisors.com)