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Making Sure Your Plan's 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"You should create a master list of items you want to see addressed by each respondent. This can, essentially, be the items in your RFP. You'll want to create a fairly detailed spreadsheet to analyze the fee component of the proposals. [Your list should include] at least the following items[.]" (Fiduciary Plan Governance, LLC)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"[C]ontact at least six firms ... [Y]ou are held to the standard of an expert in matters of plan management. If you don't have the resources to run an RFP ... find an independent consultant who can do it for you.... Unless you are using an integrated RFP platform to issue your request, to receive and aggregate information and to perform your analysis, you will want to allow about four [4] weeks from the date you issue the RFP to the date responses are due." (Fiduciary Plan Governance, LLC)
Fee Benchmarking Rises, But Does It Matter?
"The number of plan sponsors that calculated their DC plan fees within the past 12 months rose to 83.1% from 78.8% in 2016 ... And while about half (45%) of those who reviewed them kept fees the same following their most recent fee review, nearly as many (40.5%) reduced fees.... [O]ne in six plan sponsors say they are not sure what percentage of the funds in the plan offer revenue sharing." (National Association of Plan Advisors [NAPA])
[Guidance Overview] What Is 'Reasonable' Compensation for a Broker-Dealer or Advisor?
"The reasonable compensation requirement ... applies to service providers regardless of whether or not they are fiduciaries.... For compensation to be reasonable, it is not necessary to recommend a product that pays the least compensation. It is not necessary that compensation be below average. It just cannot rise to a level that is excessive in relation to the services and benefits provided.... [The] requirement applies to the compensation received by the broker-dealer and to the amount passed on by the firm to the advisor." (Drinker Biddle)
Benchmarking: It Isn't Just for Fees Anymore
"[In] the focus on fee benchmarking, some plan sponsors have concentrated solely on fees, to the exclusion of other important measures of the retirement plan's success. Plan sponsors who are not currently benchmarking the following plan metrics may wish to consider them: Overall plan asset growth ... Average account balance ... Projected income replacement ratios at retirement." (Cammack Retirement Group)
70,000 Oracle Workers Get Class Status in 401(k) Fee Case
"A federal judge in Colorado Jan. 30 granted class status to the workers, who accuse the California software company of draining more than $40 million from its retirement plan through a bad deal with the plan's record keeper, Fidelity Management Trust Co." [Troudt v. Oracle Corp., No. 16-175 (D. Colo. Jan. 30, 2018)] (Bloomberg BNA)
Lower Fees May Not Mean Added Retirement Savings
"Lowering investment fees by 100 basis points saves the average investor $40,000 by the time they hit retirement ... but the vast majority of cut-rate products will also sacrifice quality and may come along with higher costs elsewhere.... A focus on lowering non-fee costs could save clients around $340,000 over the same period ... [T]he typical retiree accumulated an average of 124% more wealth in retirement when using a strategy that reduced non-fee costs, rather than using products that just had a low relative price." (Financial Planning)
Mutual of Omaha Sued Over Affiliated Funds in 401(k) Plan
"The proposed class action accuses Mutual of Omaha of filling its 401(k) plan with affiliated investment funds that were essentially funds offered by third parties plus an extra layer of fees that went to the Nebraska-based insurer. The company also tacked on extra layers of fees to unaffiliated funds in the 401(k) plan, according to the complaint. These extra layers of fees allowed Mutual of Omaha to pocket more than $1 million per year at the expense of workers' retirement savings, the lawsuit says." (Bloomberg BNA)
Retirement Plan Best Practices
"Best practices include: [1] Documenting the administrator's decision-making process to show the basis for making decisions on behalf of the plan. [2] Selecting qualified individuals for any fiduciary committee, with clearly designated areas of responsibility. [3] Regular monitoring and adjustment of investment selections based on the plan goals.... [4] Keeping an eye on costs.... [5] Carefully review any changes to the plan documents.... [6] Communicate with employees and plan participants about plan eligibility and enrollment deadlines." (Butterfield Schechter LLP)
Text of District Court Order Dismissing Participant's Excessive Fee Claim Against Capital Group (PDF)
"It may not be necessary for Plaintiff to allege that the challenged funds underperformed, but Plaintiff must at least allege facts that plausibly suggest the fees were unjustified. That Defendants 'could' have chosen funds with lower fees, that 'similar' Vanguard funds charged lower fees, and that all or most of the challenged funds were Defendants' own financial products are insufficient, when viewed in context, to create a plausible inference of wrongdoing." [Patterson v. Capital Group Companies, Inc., No. 17-4399 (C.D. Cal. Jan. 24, 18)] (U.S. District Court for the Central District of California)
New Excessive Fee Litigators Emerge
"The suit, which seeks class action status to represent more than 13,000 participants in the hospital's $714 million 403(b) retirement plan, accuses the plan's fiduciaries of committing what the defendants claims is 'one of the most common and well-known examples of an imprudent investment' -- purchasing a more expensive share class of a mutual fund when a less expensive share class is available. 'A prudent fiduciary does not make such an elementary mistake,' the plaintiffs state." (National Association of Plan Advisors [NAPA])
Using Plan Assets to Pay 401(k) Fees? Reasons to Consider Payment by Plan Sponsor Instead
"Because so few 401(k) providers offer plan sponsors the opportunity to pay 401(k) administration fees themselves, many business owners don't know this option even exists. That's too bad because it's not just 401(k) plan participants that benefit when their employer pays 401(k) administration fees. Business owners also benefit by reducing their fiduciary liability, lowering their taxes, increasing their 401(k) returns and improving their plan's attractiveness to employees." (Employee Fiduciary)
Pensions Are Still Hiding from the Truth
"Funds have a choice to make when they set their return expectations ... [1] Shoot low, and require governments or companies to put more funding aside to fund the pensions, or [2] Shoot high and gamble on having strong enough returns to make up for under-funding their liabilities. Most funds have chosen the second option. This ... could lead to millions of retirees getting less than they were promised years from now when reality finally comes to call." (Young Research and Publishing, Inc.)
401(k) Fees: Best Practices for Plan Sponsors
"Based upon guidance from the DOL, you should conduct an RFI or RFP process every three to five years for the providers you work with.... Use lowest-cost share classes ... Make sure you offer the right investment options ... Perform an annual investment fund review ... Evaluate service provider fees each year ... Consider replacing an advisor with an investment adviser ... Distribute required fee notices ... Seek balance in all things." (Lawton Retirement Plan Consultants)
DC Plan Sponsors Continue Focus on Fees
"Sponsors, by a wide margin, cited reviewing plan fees as the most important step they took in improving their fiduciary position in 2017, and 60% of survey respondents said they are somewhat or very likely to conduct a fee survey in 2018.... Nearly three quarters of non-government plans used auto enrollment; four out of five plans with auto enrollment also offered automatic contribution escalation; and plan sponsors reported the highest average auto enroll default contribution rate in the survey's history (4.6%)." (Callan Associates)
Lawsuit Moves Forward Over University of Chicago Retirement Plan Expenses
"The university worker who challenged the school's $2.1 billion plan sufficiently alleged that he paid excessive record-keeping and administrative fees, a federal judge ruled Jan. 10. In September, the school convinced the judge to dismiss all claims related to this plan -- leaving in place only challenges to the school's smaller $980 million plan -- by arguing that none of the workers involved in the lawsuit received benefits through the bigger plan. The workers resolved that issue by adding a new party to the lawsuit, the judge said, and he allowed challenges to both plans to move forward." [Daugherty v. Univ. of Chicago, No. 17-3736 (N.D. Ill. Jan 10, 2018)] (Bloomberg BNA)
Vanderbilt Can't Shake Suit Over Retirement Plan Fees
"A federal judge on Jan. 5 largely refused to dismiss a proposed class action accusing the school of running a retirement plan with excessive administrative fees, too many service providers, and high-fee investment options. The school nevertheless succeeded in having portions of the lawsuit dismissed, including claims that the school acted disloyally and confused workers by giving them too many investment options." [Cassell v. Vanderbilt Univ., No. 16-2086 (M.D. Tenn. Jan. 5, 2018)] (Bloomberg BNA)
KKR, Blackstone Sued Over Fund Sales to Kentucky Retirement System Pension Plan
"The plaintiffs, including a retired state trooper and a firefighter, allege that the big asset managers misrepresented expensive and risky 'black-box' bundles of hedge funds as safe ways to generate high returns. Instead, those investments contributed to the pension system's virtual insolvency, the plaintiffs said, while the managers pocketed excessive fees." (Pensions & Investments)
[Opinion] Target Date Funds Could Be Costing Your Plan More Than You Know
"As a plan sponsor, you need to understand your participant demographics, needs, amount of service needed and any limitations of your plan provider. TDFs have been manufactured and brilliantly marketed by a very powerful financial service industry. It's important to understand that they are not superior to other investments when it comes to performance. So, if they're not superior to other investment options, then you should ask yourself ... who stands to profit the most from their use?" (PLANSPONSOR)
Princeton Retirement Plan Lawsuit Paused by Judge
"A lawsuit challenging the fees and investment options in Princeton University's retirement plan will be put on hold until a federal appeals court considers a similar case against the University of Pennsylvania.... The judge said the Third Circuit's ultimate ruling in that case 'directly bears' on how the Princeton case is resolved." (Bloomberg BNA)
CenturyLink Complaint Claims Large Cap Multi Manager Fund Is Defective Design
"As in other ERISA prudence litigation, the plaintiff references research that purports to prove the efficient market hypothesis. But, despite the claims of some plaintiffs in 401(k) plan fee litigation, no court has found, as a matter of law, that including an actively managed fund in a 401(k) plan fund menu is per se imprudent or, even, creates a presumption of imprudence. Indeed, despite these plaintiffs' claims, it's hard to imagine a court adopting such a standard." (October Three Consulting)
Fee Structure and Evaluation in 403(b) Plans
13 pages. "One-third of respondents are unsure if their plan uses revenue sharing to pay expenses, including 50 percent of small plans. One-fourth of plans reallocate revenue sharing among all participants while one-fourth of respondents are unsure.... About one-fourth of respondents are not aware of formal fee policy statements. Half of respondents are unfamiliar with fee levelization." (Plan Sponsor Council of America [PSCA])
403(b) Sponsors Need More Information on Plan Design, Including How Plan Expenses Are Paid
"Nearly one-third (30.9 percent) of 403(b) plan sponsors are unsure as to whether they use revenue sharing to pay plan expenses ... The PSCA annual survey also found low use of a formal fee policy statement to monitor the reasonableness of plan fees and services, with less than one-third (31.9 percent) of respondents indicating their use. One-fifth (21 percent) are not aware of what a fee policy statement is, according to the survey." (Plan Sponsor Council of America [PSCA])
Excessive Fee Suit Targeting Fujitsu Results in $14 Million Settlement
"The lawsuit contended that among defined contribution plans with more than $1 billion in assets, the average plan has costs equal to 0.33% of the plan's assets per year. However, in 2013, total fees for the Fujitsu plan amounted to approximately 0.88% of plan assets, or about $11,400,000. In 2014, total fees amounted to approximately 0.90% of Plan assets, or about $11,900,000." (PLANSPONSOR)
Reconsidering Revenue Sharing to Pay Retirement Plan Costs
"[P]articipants invested in [a fund which shares revenue] see only net performance ... Part of their performance goes to [the fund] and part goes to the plan's record keeper or other service providers. Is this disclosed to investors? Surprisingly, such disclosure is not required.... [R]evenue sharing ... is easily forgotten about, causing some plan sponsors to neglect assessing reasonableness of fees relative to services provided, and potentially misleading participants about the true cost of plan recordkeeping and administration." (P-Solve LLC)
General Electric 401(k) Lawsuits Poised for Law Firm Battle
"[On December 4, GE asked a judge] to transfer a proposed class action over its $28.5 billion 401(k) to a federal court in Massachusetts, where three similar lawsuits have been filed in the past six weeks. Sanford Heisler Sharp LLP, the law firm that brought the first lawsuit against GE in a California federal court, responded the same day by asking for the Massachusetts cases to be transferred to California.... Each lawsuit accuses GE of filling its 401(k) plan with affiliated mutual funds that drained workers' retirement savings while earning hundreds of millions of dollars for a subsidiary company that GE eventually sold to State Street in 2016." (Bloomberg BNA)
FINRA Says BB&T Overcharged Retirement Plans, Charities
"FINRA said that from at least July 1, 2009, through Aug. 1, 2017, BB&T sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses to certain retirement plan and charitable organization customers who were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge." (Pensions & Investments)
Union Fund Hit with Excessive Fee Suit
"Similar to many excessive fee lawsuits filed against single-employer plans, the complaint accuses a multiemployer plan of failing to leverage its bargaining power to obtain lower investment and recordkeeping fees." (PLANSPONSOR)
Meet the Law Firms Fighting 401(k), Health Plan Class Actions
"For the second year in a row, [Morgan Lewis & Bockius LLP is] the law firm getting the most ERISA class action business.... Dorsey & Whitney LLP follows closely in number of ERISA class actions.... Skadden Arps Slate Meagher & Flom has been hired to defend eight ERISA class actions in the past year.... Proskauer Rose LLP, Alston Bird, Groom Law Group Chartered, and Reed Smith LLP are defending seven class actions, respectively.... Steptoe & Johnson LLP was hired to defend six ERISA class actions.... O'Melveny & Myers LLP and Sidley Austin LLP are defending four class actions each." (Bloomberg BNA)
Union Retirement Plan Latest Target of 401(k) Fee Litigation
"The flurry of litigation over 401(k) plan fees has reached a new frontier: a union retirement plan covering more than 27,000 Teamsters and other union workers. The proposed class action ... targets the trustees of the Supplemental Income 401(k) Plan, a $921 million union retirement plan based in California. According to the lawsuit, the plan paid excessive fees to its two record keepers and offered expensive, retail share classes of mutual funds when cheaper, institutional share classes were available." (Bloomberg BNA)
How Do 401(k) Participants Really React to Fee Levelization?
"According to a recent survey, 6 in 10 participants don't know what fees they pay or say (believe) their employer pays all of the fees. That's a red flag in and of itself ... It can also be a reason some plan sponsors implement fee levelization -- they believe fees become more transparent to participants. That's not necessarily true[.]" (The Principal Blog)
Retirement Plan Participants' Claim Survives Motion to Dismiss by American Airlines
"The participants have sufficiently pleaded claims to survive American's motion to have the case dismissed, Judge John McBryde of the U.S. District Court for the Northern District of Texas held Nov. 27 ... McBryde's decision comes one year after he rejected an $8.8 million proposed settlement that would have ended the dispute between the parties. In rejecting the proposed deal, McBryde said the amount may be 'inadequate' because workers may have lost out on as much as $88 million in expected returns over the past six years." [Ortiz v. American Airlines, Inc., No. 16-151 (N.D. Tex. Nov. 27, 2017)] (Bloomberg BNA)
21% of Investment Managers Plan to Lower Fees
"Investment managers are allocating a lower percentage of their revenue to bonuses: 18%, down from 24% in 2014. However, the amount of revenue allocated to cover the cost of operations increased from 42% to 60%.... The percentage of investment management firms that offered performance-based fees dropped from 75% in 2014 to 64% in 2016." (PLANSPONSOR)
Participants Say More Information About Plan Investment Fees Would Be Useful
"[N]early seven in 10 survey respondents in employer-sponsored retirement plans said they were at least somewhat familiar with their plan's fees, while 31% were not at all familiar with the fees. Roughly two-thirds had not read any investment fee disclosure in the previous year.... Of the one-third who had read a fee disclosure, nearly seven in 10 said they found the information understandable ... Roughly four in five participants said it would be at least somewhat useful to have additional information about investment fees." (PLANSPONSOR)
Text of Amicus Brief to First Circuit: Plan Sponsor's Fiduciary Duty Should Be Assessed in Terms of Process Rather Than Hindsight Results
"[A] decision from this Court endorsing Plaintiffs-Appellants' hindsight-based theory of ERISA fiduciary liability, their proposed presumption of imprudence, or their unduly expansive view of the duty of loyalty would saddle [retirement plan sponsors] with increased plan-administration and litigation costs, and their employees with decreased options for retirement savings.... [T]hese burdens would not benefit employees or plans but would be deadweight losses through transaction costs ... [and] these burdens are incompatible with ERISA's text and purposes." [Ellis v. Fidelity Mgmt. Trust Co., No. 17-1693 (1st Cir. brief filed Nov. 13, 2017; on appeal from Ellis v. Fidelity Mgmt. Trust Co., No. 15-14128, D. Mass. June 19, 2017)] (American Benefits Council and the Chamber of Commerce of the United States of America)
Wells Fargo Requires Advisers to Use Level Fees for New 401(k) Business
"[A]dvisers servicing 401(k) plans going forward will do so as fiduciaries receiving a flat fee -- a percentage of plan assets, for example -- for acting in clients' best interests. Prior to the fiduciary rule, which raises investment-advice standards in retirement accounts, firms such as Wells Fargo would only allow a select group of advisers ... to service retirement plans as fiduciaries. The remainder with retirement plan business could do so as non-fiduciaries and receive commissions, or 12b-1 fees, as payment." (InvestmentNews)
Why Performance Fees Are Banned for Most Financial Advisors
"As financial advisors feel increasing pressure to differentiate themselves, a recently emerging trend for those who (actively) manage client portfolios is the idea of charging clients not an AUM fee that is a percentage of assets, but instead, a performance-based fee that is a percentage of upside (or outperformance of a benchmark index), where the advisor's fee is forfeited if he/she fails to achieve the required threshold or hurdle rate. Such a compensation structure would compel active financial advisors to eschew closet indexing and really, truly, try to outperform their benchmarks -- which can be a very compelling proposition to prospective clients." (Nerd's Eye View)
Nordstrom Plan Participant Claims 401(k) Plan Fees No Bargain
"[The participant] argues, among other things, that Nordstrom failed to use the leverage it says the plan's $2.6 billion in assets should have enabled it to obtain reasonable fees for plan participants. In addition, she argues that the plan fiduciaries failed to adequately and prudently manage the plan by not using lower-cost investment vehicles and that they provided inadequate disclosures on fees." [McCorvey v. Nordstrom, Inc., No. 17-8108 (C.D. Cal., complaint filed Nov. 6, 2017)] (National Association of Plan Advisors [NAPA])
[Opinion] Fiduciary Rule Fallout: Increasing the Cost of Retirement
"Research conducted by the U.S. Chamber found that 6 million investment accounts already face increased costs directly related to the Fiduciary Rule. Another recent study by the Securities Industry and Financial Markets Association (SIFMA) estimated $4.7 billion of compliance fees will be passed onto savers and investors following the fiduciary rule's implementation. The rising costs can primarily be explained by the change in the pricing of financial advice." (U.S. Chamber of Commerce)
Chamber Backs Mandatory Arbitration of Employee Benefit Issues
"The Chamber is backing the University of Southern California in its attempt to move a proposed class action over the fees associated with its retirement plan into arbitration. In a brief filed Nov. 6, the Chamber asked the U.S. Court of Appeals for the Ninth Circuit to rule that employment agreements with arbitration clauses -- like the ones USC required its workers to sign -- apply to disputes involving retirement plans governed by [ERISA]." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir., amicus brief filed Nov. 6, 2017)] (Bloomberg BNA)
Plan Sponsor Fee Litigation Cases on the Rise (PDF)
"[This article provides a] summary of recent fee lawsuits and implications for your plan.... This year has been an active year for excessive fee cases as more than 30 cases have been filed across almost every circuit in the country. In comparison, over the past decade, there were only about 80 ERISA excessive-fee cases filed across the country." (Groom Law Group, via Plan Sponsor Council of America [PSCA])
Wells Fargo Gets Industry Support in Appeal Challenging Use of In-House Target Date Funds
"The U.S. Chamber of Commerce and other prominent industry groups are backing Wells Fargo & Co. in an appeal challenging the in-house target date funds in the company's 401(k) plan ... The groups are urging the U.S. Court of Appeals for the Eighth Circuit to uphold a decision dismissing a challenge to the affiliated target date funds in the 401(k) plan for Wells Fargo employees." (Bloomberg BNA)
Xerox Nixes Challenge to Robo-Adviser Fees in Ford 401(k) Plans
"Xerox HR Solutions LLC escaped a lawsuit by participants in three Ford Motor Co. 401(k) plans challenging the allegedly excessive fees charged for investment advice provided by robo-adviser Financial Engines Advisors LLC. Xerox -- which provided administrative and record-keeping services to the Ford plans -- didn't act as an [ERISA] fiduciary with respect to the compensation it received from Financial Engines ... Xerox had no discretion over the amount of its own compensation as it relates to the participants and thus wasn't acting as a fiduciary in collecting fees from Financial Engines, Cleland held." [Chendes v. Xerox HR Solutions, No. 16-13980 (E.D. Mich. Oct. 19, 2017)] (Bloomberg BNA)
District Court Halts Some Portions of Challenge to MIT DC Plan
"[P]laintiffs allege breaches of the ERISA duties of loyalty and prudence arising out of the plan's inclusion of retail class options instead of institutional class options in the funds provided by Fidelity Investments. In addition, plaintiffs allege that Fidelity was paid excessive compensation for its recordkeeping services and that MIT never engaged in a competitive bidding process for those services.... The district court decision spells out a number of key caveats impacting this type of ERISA litigation, explaining why it is dismissing some aspects of the various claims while permitting others to go to a full trial." [Tracey v. Mass. Inst. of Technology, No. 16-11620 (D. Mass. Oct. 4, 2017)] (planadviser)
Interesting Angles on the DOL's Fiduciary Rule, Part 66
"Because of the change in the definition of fiduciary advice (which applied on June 9, 2017), all advisors to retirement plans need to review their prior 408(b)(2) disclosures to see if changes are necessary.... [Would] the following types of disclosures [be] narrow enough to provide information that allows the plan fiduciaries to make those determinations? [1] For mutual funds, the broker-dealer may receive between 0% to 10% front-end commissions. [2] As ongoing trailing commissions, the compensation may range from 0% to 2% per year. [3] The compensation for managed accounts will not exceed 2.5% per year." (
Plaintiff's Attorneys to Get Almost $6 Million from Tibble v. Edison Challenge to Plan Investment Fees
"The recommendation of the parties ... is that the law firm of Schlichter Bogard & Denton LLP will receive $5.8 million for all attorney fees and taxable costs and non-taxable litigation expenses, in exchange for which plaintiffs and their attorneys (including Class Counsel) waive and forever relinquish their right to seek any additional payment of attorney fees or costs from defendants. Assuming the court concurs with the recommendation, that sum is to be paid to the law firm on or before Nov. 1, 2017." (National Association of Plan Advisors [NAPA])
Prudential Beats Appeal Over Alleged 401(k) Kickback Scheme
"Prudential didn't act as an [ERISA] fiduciary in its role as the service provider and directed trustee of Ferguson Enterprises' retirement plan ... the Second Circuit held ... While Prudential may qualify as a fiduciary with respect to certain separate accounts it managed, the participant failed to properly plead a breach of fiduciary duty related to those accounts, the three-judge panel said." [Rosen v. Prudential Ret. Ins. & Annuity Co., No. 17-0239 (2d Cir. Oct. 11, 2017)] (Bloomberg BNA)
Which 403(b) Plans Are Good Fee Levelization Candidates?
"More than a quarter (26.2%) of 403(b) organizations are currently re-evaluating how plan expenses are allocated. Beyond fee allocation, some 403(b) organizations plan to tailor their investments with a tighter list of investment options -- dropping to 26, down from 28 last year. By narrowing the options, organizations can help make investment decisions less daunting for plan participants." (The Principal Blog)
What a Fiduciary Should Know: Down and Dirty with 'Clean' Shares
" 'Clean' shares refer to mutual funds with all the sales-related fees stripped out of them.... This long-term trend among mutual funds to incorporate conflict-of-interest fees into their business models may have finally hit a brick wall with the DOL's Conflict-of-Interest (a.k.a. 'Fiduciary') Rule.... In shifting away from broker-oriented transaction fees, the industry itself may shift towards new business models.... With fees no longer hidden, it will be easier to monitor fees and competitive pressure will likely eliminate excessive fees." (Fiduciary News)
MIT Must Defend Lawsuit Over Excessive Fees in Retirement Plan
"Judge Nathaniel M. Gorton ... partially adopted the magistrate judge's 59-page report and recommendation not to dismiss most of the participants' claims under [ERISA]. Gorton refused to dismiss claims that MIT acted imprudently by charging excessive record-keeping fees and failing to choose the least expensive share classes for some of the plan's investment options. However, Gorton departed from the magistrate judge's recommendation to allow the participants' claims of prohibited transactions based on an alleged kickback scheme between Fidelity and the plan." [Tracey v. Mass. Inst. of Tech., No. 16-11620 (D. Mass. Oct. 4, 2017)] (Bloomberg BNA)
Fee Litigation Sets Sights on Corporate Retirement Plans
"Currently, there are more than 20 different financial institutions facing lawsuits challenging these in-house 401(k) investments.... [O]nly two were defeated at the motion to dismiss stage. The remainder are either pending, have had their motions to dismiss denied, or have engaged in multi-million-dollar settlements." (Willis Towers Watson)
ERISA Excess Fee Litigation: Waiting for the Deluge
"It's exceedingly easy to gather information on plan fees from 5500 filings. It is in the public domain on the Labor Department website for everyone to see. Participants, vendors and attorneys will find opportunities to use it. If a plan is paying excessive fees someone will find out. Just about any law firm can now get in on this action. Before it was St. Louis-based Schlichter Bogard & Denton. This is no longer true. It doesn't take much to copycat an electronically previously filed complaint and use it for another. This means to me there will be more of these cases." (Fiduciary Plan Governance, LLC)
Average 403(b) Fees: How Do Your Plan Expenses Measure Up?
"Smaller plans tended to incur higher costs to run their 403(b) plans. Plans with $1-$10 million in assets experienced total plan costs of 0.91% of assets, almost double the 0.46% costs incurred by non-profits with more than $1 billion assets in their 403(b). Even plans with $100-$250 million in assets, at 0.54%, experienced far lower costs than the smallest plans." (ForUsAll)
GE Hit with Lawsuit Over Fees in Its $28 Billion 401(k)
"GE allegedly selected and retained its proprietary mutual funds in the plan, earning hundreds of millions of dollars from a subsidiary that managed the plan to the participants' detriment, according to a lawsuit filed Sept. 26 in federal court in California. GE's selection of its proprietary funds for the plan provided its subsidiary -- GE Asset Management Inc. [GEAM] -- a constant source of fees and helped inflate the market value of GEAM, which GE sold to State Street for $485 million in 2016." (Bloomberg BNA)
University of Chicago Can't Escape Retirement Plan Lawsuit
"The judge on Sept. 22 refused to dismiss claims that the plan's fiduciaries acted imprudently by offering high-fee investment options and poorly performing funds in the school's $980 million retirement plan. However, the judge dismissed allegations of disloyalty and claims involving a separate retirement plan with $2.1 billion in assets and 13,000 participants." [Daugherty v. Univ. of Chicago, No. 17-3736 (N.D. Ill. Sept. 22, 2017)] (Bloomberg BNA)
Fidelity Prevails in Suit Over Investment Costs, Robo-Adviser Fees
"Fidelity Management Trust Co. and a subsidiary defeated a lawsuit by participants in Delta Air Lines Inc.'s retirement plan challenging alleged high-cost investment options and certain financial advisory fees. The participants failed to show that Fidelity exercised a fiduciary function over which share classes would be available to them through the brokerage account that would give rise to liability under [ERISA] ... The plan documents show that once Delta chose to include a brokerage account, Fidelity was bound to follow the participants' investment instructions and exercised no discretion or authority with respect to which shares they elected to buy[.]" [Fleming v. Fidelity Management Trust Co., No. 16-10918 (D. Mass. Sept. 22, 2017)] (Bloomberg BNA)
University of Pennsylvania Prevails in 403(b) Fee Suit
"The suit, brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources ... alleges ... that: [1] the defendants breached their fiduciary duty by 'locking in' plan investment options into two investment companies; [2] the administrative services and fees were unreasonably high due to the defendants' failure to seek competitive bids to decrease administrative costs; and [3] the fiduciaries charged unnecessary fees while the portfolio underperformed." [Sweda v. Univ. of Penn., No. 16-4329 (E.D. Pa. Sept. 21, 2017] (National Tax-Deferred Savings Association [NTSA])
Jerry Schlichter's Fee Lawsuits Have Left an Indelible Mark on the 401(k) Industry
"All told, there were 31 so-called 'excessive fee' suits filed by Mr. Schlichter and other firms over 2006-07 ... Following several large monetary settlements, including $62 million from Lockheed Martin, the litigation caught a second wind beginning in 2015. Last year, there were 29 new cases filed through September ... That's the largest annual total to date, and there's no sign the pace is slowing down.... One result of the litigation has been increased fee transparency." (InvestmentNews)
Wells Fargo Beats ERISA Challenge Over Cross-Selling Scandal
"Participants failed to show that the plan's fiduciaries couldn't have concluded that a disclosure of the unethical sales practices prior to 2016 would have done more harm than good to their investments, Judge Patrick J. Schiltz of the U.S. District Court for the District of Minnesota held Sept. 21.... Schiltz allowed [participants] to amend their claim of breach of the duty of loyalty, but they will have to specify exactly who breached the duty, when, and how." [In re Wells Fargo ERISA 401(K) Litig., No. 16-3405 (D. Minn. Sept. 21, 2017] (Bloomberg BNA)
Novitex Sued Over 401(k) Plan Fees, Not First Modest Plan Hit
"Novitex and its employee benefits committee failed to monitor the plan's investment options -- including its selection of mutual funds and a stable value fund -- to ensure that they were diversified and not excessively priced, according to a lawsuit filed Sept. 20 in the U.S. District Court for the District of Connecticut. Novitex also breached its fiduciary duties under [ERISA] by retaining and excessively compensating UBS as the plan's investment adviser, the complaint alleges.... The company's 401(k) plan had $157 million in assets and more than 10,000 participants as of 2015, according to the lawsuit." (Bloomberg BNA)

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