Fee for All

In mid-September, multiple class-action lawsuits were filed against several 401(k) plans sponsored by large employers. They name the employers as defendants and, in some cases, plan fiduciary committees and their various individual members under the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs allege a variety of breaches of fiduciary duties and prohibited transactions relating to fees paid by 401(k) plans; the complaints say such breaches occurred because the plans and participants were subjected to excessive fees and expenses.

At the heart of the cases is a claim that the plan fiduciaries did not understand properly the revenue-sharing arrangements made with plan service providers as ERISA requires, and that such arrangements violated ERISA’s mandate that actions with respect to the plan and its assets be undertaken solely in the best interests of plan participants and their beneficiaries. Further, the claims maintain, as has been argued but not yet adjudicated in other courts, that those revenue-sharing payments drawn from plan holdings are plan assets. According to the complaints, the “hidden” fees and revenue sharing payments also amounted to prohibited transactions between the plans and their service providers. The plaintiffs also challenge these fees and payments as a violation of the requirement that plan assets be used solely for the benefit of participants and beneficiaries, and various other breaches of fiduciary duty. Additionally, the suits, which, although similar, are not identical in their claims, take issue with the lack of disclosure of fees paid by the plan to participants.

All complaints say the participants were not made properly aware of the revenue-sharing and fee arrangements. However the cases differ on how some of those payments were made; some argue that the charges were hidden and made through master trusts while others appear to say payments were excessive and undisclosed—some argue both occurred. The cases argue that, however the fees were paid, participants’ accounts were affected adversely by the application of these charges to their accounts and that, in a worst-case scenario, the fees were complex, excessive, undisclosed, and illegal. Because the complaints argue that the revenue-sharing payments were plan assets, plaintiffs claim that the plan fiduciary defendants are responsible for restoring the losses—arising from their fiduciary breaches—to the retirement plans.

Attorney Jerome Schlichter, whose law firm filed these suits, claims that his firm is not seeking to be seen as the leader of a campaign over the issue. Schlichter asserted in an interview with PLANADVISER that the suits, filed in Illinois, Missouri, and California, by Schlichter, Bogard & Denton, were the results of investigations into the specifics of each plan, a perspective that appears to be supported by the details in each claim. While he acknowledged that there were similarities in the allegations leveled in each complaint, Schlichter refused to estimate a dollar amount of how much in excess fees were being charged by the plans. “No one should read any conclusion into that,” Schlichter declared.

Despite that contention, the claims made in the complaints are applicable to a significant number of retirement plans in existence today because of the prevalence of the fee arrangements and practices cited.