The rash of excessive fee lawsuits started over a decade ago has picked up with over a dozen filed since September 2015. BNA asked a panel of ERISA lawyers how these suits are reshaping 401k plans and the industry as a whole.
Though the majority of the excessive fee lawsuits have been filed against plans with more than a billion in assets, a recent suit filed against a $9 million Minnesota 401k plan has experts wondering whether this is start of a trend or just lightning in a bottle. The attorneys cited a number of ways that the lawsuits have affected 401k plans including:
- Overall Fees Lower – According to Jerry Schlichter, the lead attorney on many of the early cases, the DOL was asleep at the wheel when he started looking at the DC industry which meant that many plan sponsors were not paying enough attention to fees in their 401k and defined contribution (DC) plans. As a result, and due to 2012 DOL disclosure rules 408b2 and 404a5, overall fees have declined and should continue. One attorney questioned whether the focus is now on cheaper plans at the expense of good service and whether it will inhibit innovation. And though overall fees have declined, revenue sharing costs used to pay administrative and advisory fees, have actually increased recently but expense ratios have declined with the greater use of index funds.
- Fiduciary Liability Insurance on the Rise – Getting insurance to protect against lawsuits is relatively easy and inexpensive and will, according to experts, become the cost of doing business. But don’t confuse liability insurance with the bonding plans have to get to protect against malfeasance and be wary of liability insurance offered by record keepers which usually only cover investment selection and are very restrictive.
- MEPs Growing – Multiple employer plans where companies pool their assets is expected to take off to lower fees and have more sophisticated management. But some MEPs, like the PEO which was sued for excessive fees, are profit making ventures and may jack up fees anyway.
Overall the attorneys thought that lawsuits would not kill or inhibit the use of 401k plans to help their employees with retirement but all bets may be off if the $9 million Minnesota lawsuit inspires other cases against smaller plans.
