According to a new analysis from Bloomberg Law, proposed class action lawsuits claiming excessive 401k plan fees are on track for a fivefold increase between 2019 and 2020, with 65 cases filed during the first eight months of 2020.
By comparison, there were only 20 cases filed in all of 2019. Back in 2013 there were just two lawsuits filed, but there were 56 lawsuits in 2016 and 51 in 2017, according to the Center for Retirement Research at Boston College.
A handful of law firms are responsible for bringing the lawsuits so far this year, led by Capozzi Adler, which has filed 26 cases. Famed retirement plan litigator Jerry Schlichter’s firm, Schlichter, Bogard & Denton, has filed five.
The spike in cases, attorneys tell Bloomberg Law, can be explained by the maturing body of law under the Employee Retirement Income Security Act of 1974 (ERISA), an emerging blueprint for filing and litigating cases, new tools available to plaintiffs’ attorneys, and even the global pandemic.
The article notes that some employers, including Cerner Corp., Omnicom Group Inc., and Quest Diagnostics Inc., have even been sued twice by participants who say the plans are too expensive.
While inappropriate investment choices or self-dealing are common complaints behind 401k lawsuits, in recent years excessive fees have been the catalyst for most cases. 401k plans don’t have to offer the lowest-cost investment choices, but they must be reasonable and subject to periodic review.
Minimizing the risk of excessive fee lawsuits is one reason plan sponsors have increased their use of low-cost investment options such as index or target date funds as default options, which can help lower overall costs.
COVID effect
The Bloomberg Law article points to COVID-19 as being partly responsible for this year’s spike in lawsuits. The story quotes James E. Miller, a plaintiff-side litigator and a partner with Shepherd, Finkelman, Miller, & Shah LLP in Chester, Conn., whose firm has had five to 10 times as many inquiries from retirement plan participants and plan sponsors concerned about fees.
“With the pandemic, participants and retirees are at home and frankly are having more time to focus upon their retirement savings and be concerned about their retirement savings,” Miller said. “They’re making inquiries about whether their investments and the expenses in their plans are appropriate.”
Only about four 401k lawsuits were filed per month in January, February and March of 2020, before dramatic pandemic restrictions, but more than a dozen lawsuits per month were filed in June, July and August.
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