Spotlight on 401(k) fees may help many saving for retirement

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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.

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Ameriprise workers sue over company’s own 401(k) funds

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When the new fee disclosure regulations become effective next year (2012) there may be an increase in cases such as this. Plan sponsors are responsible and should begin taking precautions. If nothing else it may hurt relations with their workforce.

The workers allege that Ameriprise and its committees, as the plan’s overseers, violated their fiduciary duty to the retirement plan. Investments in the 401(k) plan included mutual funds and target date funds from Ameriprise subsidiary RiverSource Investments LLC, which is now known as Columbia ManagementInvestment Advisers LLC. Between 2005 and March 2007, an average of $500 million in plan assets went annually into RiverSource and Ameriprise Trust Co., the trustee and record keeper of the plan, according to the complaint.Ultimately, the investment generated fee revenue for RiverSource and its affiliates, as well as for Ameriprise Trust Co., the plaintiffs claim. Further, the funds themselves were costly when compared to offerings from The Vanguard Group Inc., the workers say.

Every employer which sponsors a 401(k) plan for their employees is responsible for the selection of prudent investments for their plan. This includes financial institutions which provide such funds.

Please comment or call to discuss how this affects you and your employees.

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