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Fiduciary Update – Retirement Plan Excessive Fee Litigation Heats Up this Summer


Until recently, it appeared that plaintiffs' firms had taken a hiatus from excessive fee litigation targeted at large companies. In August 2016, the focus shifted to fees paid by 403(b) plans of large universities. As those cases worked their way through the court systems, new cases emerged involving 401(k) plans sponsored by financial companies that allegedly filled their own plans with high-fee, poorly performing affiliated funds, including one case recently settled for $28.5 million.

In recent months, we have seen an uptick in fiduciary litigation involving 401(k) and 403(b) plans of private employers. Last month, at least three new excessive fee cases were filed in Wisconsin and at least seven additional excessive fee cases were filed in other jurisdictions.

The recent Wisconsin cases include allegations, among others, that plan committees breached their fiduciary duties to participants and beneficiaries by:

  • Authorizing the plan to pay unreasonably high fees for recordkeeping, which were consistently greater than the fees of most comparable plans, when fees are calculated as a per participant cost or as a percent of total assets;
  • Failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent in terms of cost;
  • Maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs, and/or better performance histories; and
  • Generally choosing more costly “actively managed funds” rather than “index funds” that offered equal or better performance at substantially lower cost.

The plaintiffs further allege that the plans had substantial bargaining power regarding fees and expenses, but the defendants did not try to reduce the plans’ fees and expenses. The complaints include charts comparing the net expense ratio of each investment with a lower-cost Vanguard fund and calculating an alleged percentage of excess fees for each option.

Key Takeaways
These cases serve as a reminder to plan fiduciaries to remain diligent in reviewing recordkeeping fees and monitoring plan investment options. The Department of Labor also recommends periodic fiduciary training to help fiduciaries stay in compliance with ERISA rules and regulatory changes.

Quarles & Brady attorneys can provide guidance and fiduciary training to help plan fiduciaries satisfy their duties under ERISA.

If you would like further assistance with your retirement plan or have questions about fiduciary obligations, please contact your local Quarles & Brady attorney or our employee benefits team:

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