For those of you keeping score at home, the pace of 401k fee lawsuits is increasing. More and more large companies are being sued, and even higher education institutions and learning are in the crosshairs. I did a recent Google search for “401k fee lawsuit,” and nearly 400,000 results come up!
Also, more and more plaintiff’s attorney’s are getting into the mix, and a colleague of mine in the industry shared with me that he recently received a VM from a gentleman stating he was “seeking an expert in the standards of care in regards to appointing and monitoring fiduciaries for 401k plans.” It turns out he’s recruiting for a law firm.
One of the more ironic twists over the past few years is the industry that some of the companies who’ve been targeted work in. I’ll give you one guess. It’s the retirement industry! Here’s a list of past and pending lawsuits (and awards) for excessive fees against retirement plan vendors and advisors:
- Transamerica – Settled for $3.8m
- Fidelity – Settled for $12 million
- Ameriprise – Settled for $27.5 million
- New York Life – Settled for $3 million
- Morgan Stanley – Pending litigation
- Edward Jones – Pending litigation
- Franklin Templeton – Pending litigation
- Neuberger Berman – Pending Litigation
- American Century – Pending litigation
- Charles Schwab – Pending litigation
- JP Morgan – Pending litigation
The most recent company to get sued for 401k mismanagement is T. Rowe Price. Here’s a sampling of some of the allegations in the lawsuit:
- T. Rowe Price offered between 80 and 95 proprietary, in-house funds to its employees
- Before 2012, the funds offered were retail share classes and expensive compared not only to funds offered by other fund companies but also to the T. Rowe Price funds offered to its clients, which were lower-cost institutional share classes of T. Rowe Price funds.
- Participants allegedly paid more than $50 million in fees for investment advice to T. Rowe Price affiliated entities.
- These higher-cost funds caused participants to pay over $27 million more in fees than if comparable lower-cost options had been provided
- Had these comparable lower-cost options been provided, participants would have earned at least $123 million more f.or their retirement
Amazingly, it appears these companies who manage corporate retirement plans for their clients can’t even properly oversee their own 401k plans for their own employees from a fiduciary standpoint. Talk about a case of the “cobbler’s children having no shoes”! Of course, the companies that have settled don’t admit wrongdoing, and the ones that have pending litigation will still have their day in court to defend themselves against these allegations.
As someone who has worked as a fiduciary to 401(k) plans for over a decade, I can tell you I am not surprised by this at all. What is surprising to me is that many companies think these vendors have their best interests in mind. If you are a plan sponsor or a plan fiduciary, you’ve got to ask yourself, “if these service providers can’t manage the fees in their own plans, how confident can I be they are helping me manage the fees in my plan?”
This is why the role of the fiduciary advisor is so critical and why more and more companies are turning to 401(k) specialists like Greenspring. A specialist advisor with the right experience as an ERISA fiduciary, a commitment to fiduciary principles and practices, and the courage and conviction to hold vendors accountable are essential to protecting the interests of participants and keeping companies out of hot water. At Greenspring, our duty and obligation are to be an advocate for the companies and participants we represent and to make sure they are being treated fairly by the marketplace. If you’re a fiduciary to your company’s retirement plan and you haven’t had your plan benchmarked by a specialist firm like Greenspring in the past year, you owe it to yourselves and your employees. It’s a great time to be in the market to negotiate retirement plan services. Feel free to contact us to learn more about our 401k fee benchmarking services – we’d love to help.
