Nationwide Fees for Small Plans Targeted in Rash of 401k Lawsuits

While some experts doubt that the rash of 401k and 403b lawsuits will continue to focus on larger defined contribution plans driven by law firms with ERISA or employee benefits practices, the recent case filed against Nationwide may change that trend.

The participant who filed the suit in Schmitt v. Nationwide Life Ins. Co. in the U.S. District Court for the Southern District of Ohio was part of a plan with $1.1 million in assets and 27 participants. Dyer Garofalo Mann & Schultz, the law firm filing the suit, is a small personal injury law firm in Dayton Ohio with just 16 professionals. The lawsuit is seeking class action status against Nationwide which record keeps over 37,000 DC plans.

The suits alleges that Nationwide charged excessive fees, as much as ten times the industry norm, and fees rose as assets increased while the costs were based on the number of participants.

And while the lawsuit has a long way to go before courts will grant class action status for all participants in Nationwide plans, it does raise the question of whether we will see cases against smaller plans by local personal injury law firms especially after a major market correction. Does anyone remember the billboards by attorneys in 2009 after the market crash asking investors whether they lost money in their 401k?

Though the case was filed against the record keeper and not the plan sponsor, it should raise concerns for smaller 401k and 403b plans whose responsibilities include ensuring that fees paid out of plan assets are reasonable.

Nationwide made a $140 settlement in 2014 after a decade litigation alleging illicit revenue sharing payments from mutual funds offered to their clients.

So what should plan sponsors do now? Conduct a prudent, documented process benchmarking fees of all providers paid out plan assets including record keepers, advisors and TPAs. Or wait to be sued or audited.


Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein

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