401k Excessive Fee Lawsuit Ruling Favors Employees

Employees won big in a 401k lawsuit as the Supreme Court ruled that employers must continually reevaluate investment options provided to their workers.

The ruling may help American workers get more of their actual retirement savings while having less go toward 401k excessive fees. The favorable outcome will require companies to make sure their 401k plans have lower fees, which is in the best interest of their employees.

The 401k excessive fee lawsuit was filed by workers at the California utility company Edison International. Edison employees accused the company of only offering high-cost shares when they allege a lower-cost 401k plan should have been an option.

Edison workers were able to invest in retail funds that are generally made available to the public at a higher cost. The employees claimed that they had a legal right to a lower-cost 401k plan which would include institutional-class funds. 

The 401k lawsuit was initially rejected by the 9th Circuit Court of Appeals based on the expiration of the six-year statue of limitations. Since the Supreme Court overruled the statute of limitations when it comes to fiduciary duty, employees should now be able to file 401k class action lawsuits against employers beyond the six-year limit.

In addition, the ruling in Tibble v. Edison International has also paved the way for other U.S. employees to file similar lawsuits to make sure their 401k plans have reasonable fees.

401k Fees Explained

According to the federal Employee Retirement Income Security Act (ERISA), employers are legally required to make sure the fees attached to 401k plans are fair. Companies also have a responsibility to act in the best interest of their workers when it comes to their retirement plan. When employers fail to provide workers with lower fees this ultimately affects what a worker receives when they retire.

A recent 401k study found that on average a family that makes a two-earner annual income of roughly $150,000 will end up paying almost one-third of their investment in 401k fees. Therefore, even a small percentage point change in 401k fees can have a huge impact on the eventual outcome of the retirement plan funds.

For example: A worker invests $25,000 with 35 years until retirement and assuming the funds earn an average of 7 percent per year, the worker will have $227,000 if the 401k fees are 0.5 percent. If the 401k fees increase to 1.5 percent, the employee will only have $163,000 upon retirement.

401k Legal Rights

ERISA legally protects employees who participate in retirement plans like a 401k. Under ERISA, employers are legally required to act in the best interest of their employees by taking the following actions: 

• Making sure 401k fees are reasonable
• Selecting investments that are prudent and appropriately diversified
• Creating a reasonable process for selecting investment options and service providers
• Disclosing all plan, fee and investment information to workers
• Routinely evaluating investment options and providers even after they are selected to make sure they are still the best option for employees

Join a Free 401K Class Action Lawsuit Investigation

If you believe you have been overcharged for 401k fees by your employer’s retirement plan, or that the investments were otherwise imprudent, you may be eligible for a FREE class action lawsuit investigation and pursue compensation for these violations.

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