Which 401(k) Plans Get Sued and Why?

401k, fees, retirement, ERISA

Anyone is a target.

It used to be reserved for major 401k plans with deep pockets, but fiduciary lawsuits against plan sponsors have come decidedly down-market. It seems anyone can now be sued for a variety of reasons, something a new whitepaper hopes to mitigate.

Released by Chubb and Groom Law Group, it explores the surge in ERISA litigation against fiduciaries of employer-sponsored retirement plans, regardless of size. It also specifically names the plan features that may make them a target of litigation, and the steps fiduciaries can take to potentially reduce exposure to excessive fee lawsuits.

According to the whitepaper, titled “The War on Retirement Fees: Is Anyone Safe?,” excessive fee claims are taking aim at a variety of plans, including 403(b) plans, multiple employer plans, defined benefit pension plans, and even Employment Retirement Security Act (ERISA)-exempt plans.

SEE THE FULL PAPER HERE

All types of plan sponsors are also being targeted, including publicly traded companies, privately held companies, universities, not-for-profit organizations, financial institutions, and healthcare systems.

In excessive fee claims, plan participants allege that plan fiduciaries have failed in their duty to ensure that plan recordkeeping and investment fees are reasonable. They also allege that plan investments have underperformed, costing participants millions of dollars in lost retirement benefits.

“The pace of ERISA class action filings is at an all-time high, and these cases are not only expensive to defend, but are also expensive to settle. Some of the largest settlements cost tens of millions of dollars,” Lars Golumbic, Principal of Groom Law Group, said in a statement. “It’s therefore critical for plan sponsor fiduciaries to understand their risks and take steps to potentially reduce their exposure.”

The authors emphasize that while difficult to predict and by no means a guarantee, the following characteristics (among others) make plans more susceptible to lawsuits.

Steps to reduce exposure

According to the whitepaper, mitigation steps include:

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