Reviewing and benchmarking your retirement plan’s fees is not a waste of time. When new fee disclosure legislation came out a few years ago, there was a flurry of interest in plan fees, and many participants stood up and took notice for the first time. The attention paid to fees has now begun to yield its foreseeable result: fee lawsuits.
Fee litigation has always been a part of the retirement plan landscape, and participants benefit from having this avenue to address issues, but it does seem as if there is a wave of lawsuits filed against plan sponsors for fee issues. “An unmistakable trend in the world of employee benefit plan litigation is underway, and that trend is decidedly in favor of plaintiffs,” states Joe Faucher of Trucker Huss.1 “After half a decade of frustration for the plaintiffs in the first wave of ERISA fee cases, the pendulum began to swing back in their favor,” notes Marsh’s February 2016 Insights.2 A class action suit was recently filed against Fujitsu Technology & Business of America, Inc., filed by Nichols Kaster PLLP, the same firm that filed similar suits against M&T Bank Corp., American Airlines, and Deutsche Bank. Suits against Lockheed and Boeing were headline news. Employees of financial companies seem particularly litigious, with class action lawsuits against American Century, Allianz Asset Management, and Putnam Investments. Massachusetts Mutual Life Insurance Co., Transamerica Corp., Ameriprise Financial, and Fidelity Investments have all settled excessive fee lawsuits over the past few years.
What is driving the volume of ERISA lawsuits? Part of it may be the simple awareness of fees by participants, as fees are highlighted in media and news. These lawsuits have been meeting with some success, also, spurring more litigation. Last year’s Tibble v. Edison International suit held that plan sponsors have a continuing duty to monitor funds in the plan and eliminated the notion that they cannot be sued for allegations about funds added more than six years past. And the more success ERISA lawsuits experience, the more willing plaintiff’s attorneys are to take these cases on.
Litigation about excessive fees often comes down to the processes the plan sponsor undertook to select plan investments and monitor plan fees. Did the sponsor look at fees as part of their selection process? Did they choose the lowest share class? Did they adequately monitor both investment fees and plan administrative fees? Are fees applied fairly? These are all questions plan sponsors can examine in their own plans. What else can plan sponsors do to avoid legal action? Following are a few steps sponsors can take to show that they are meeting their fiduciary duty as it pertains to fees:
- Develop and follow established processes and procedures for decision-making
- Document all processes and decisions
- Regularly benchmark fees against peers
- Conduct periodic fee reviews
- Monitor actual fees paid against contracts
- Ensure that you have adequate insurance
Please remember that it’s not about having the lowest fees. Plan sponsors need to make sure their plans have appropriate fees, which means understanding the fee landscape and where the plan fits into it. Think of it as doing the best for your participants as possible, which is the ultimate goal anyway.