Do you ever wonder how defined contribution (DC) record keepers and administrators get paid if the plan sponsor does not write a check? Most companies have figured out that some portion of the money participants pay for investments is allocated to pay administrative fees. While there’s nothing inherently wrong with that type of arrangement, it’s not always obvious how much is being paid and the question arises of why fees are higher as the assets grow. Is there more work?
A participant in a relatively small plan ($7.1 million) recently sued one of the largest DC record keepers, Empower-Retirement, alleging high fees in the Krikorian et al. vs. Great-West Life & Annuity Insurance Co case seeking class action status for all of the almost 8 million participants in that provider’s plans. The suit alleges that the fees received by Empower-Retirement were high and had no relationship to the services provided.
Note that anyone can sue anybody so there’s nothing to indicate that the claim is valid but there are some important things to note in the Krikorian case. First, the plan is relatively small. Most suits have been filed against billion-dollar DC plans. Secondly, there seems to be a rash of suits by plaintiff’s attorneys emboldened by the success of attorney Jerome Schlichter who has won $300 million in suits against DC plan sponsors and providers.
Even with the 2012 DOL reg 408(b)(2) requiring service providers to report the exact fees they expect to generate from services provided, some plan sponsors have a hard time figuring it all out in what can very confusing and long documents. And though record keepers need to disclose revenue sharing received from outside funds, it can get tricky when proprietary funds of the record keeper are used as well as other services which is alleged in the Krikorian suit.
More to come from the plaintiff’s bar, no doubt, which will either scare companies away from sponsoring a DC plan for employees or make them pay more attention.
