Supreme Court Rules on Excessive 401K Plan Fees

Excessive 401k fees can undermine a person’s retirement plans by depleting their earnings. But now the Supreme Court has stepped in, ruling to protect workers’ benefits.

In a recently issued decision, the high court put 401k plan administrators on notice when it comes to excessive 401k fees.

In May, the Supreme Court ruled that 401k plan administrators have a fiduciary duty to seek the lowest-cost funds that are readily available for their 401k plan participants, essentially stating that 401k plan administrators must monitor retirement plan investments to better serve the interests of employees.

The decision stems from a case involving Edison International, an energy and electric power supplier in California. Instead of offering employees lower-priced institutional funds, the company provided them with retail mutual funds through the 401k plan.

The case also poked a hole in the six-year statute of limitations that applied to employers and 401k plan representatives under ERISA, the Employee Retirement Income Security Act. Plan fiduciaries in the case picked some of the retail-class funds as plan options in 1999. The 401k fees lawsuit was filed more than six years later, outside of the ERISA statute of limitations.

This means that 401k plan administrators now have an ongoing responsibility to monitor a 401k plan and to make sure that if something better comes along — an improved fee structure, lower-cost alternatives and more — the 401k plan needs to allow for current affordable options. Workers now can more easily sue employers whose plans are not managed with the employee’s best interest placed first.

It is expected that the decision may open the door to further 401k lawsuits by employees who were forced to purchase more expensive investment plans when cheaper options were available.

Are Your 401k Fees Excessive?

Many employees neglect to carefully monitoring their 401k and may not be aware of what the 401k fees are actually costing them. While employers can provide a complete fee disclosure, the easiest way to tell if particular investment fees are excessive is to examine the expense ratio.

The expense ratio is calculated as a percentage of the investment’s assets that are required to maintain it each year. The lower the expense ratio, the less a person is paying out of earnings to keep it. As a general rule of thumb, anything near 2 percent is considered excessive.

Here’s an example of just how expensive 401k fees can be. Let’s say an employee has $100,000 saved in their 401k. If the money is parked in a mutual fund with an expense ratio of 2 percent, the employee is effectively handing over $2,000 a year in fees to maintain it.

Having the option to move everything over to a fund with an expense ratio of 0.3 percent would knock the 401k fees down to just $300. That can make a huge difference in the size of your 401k retirement over time.

401k Lawsuits

Workers should have access to the best fee structures available for their retirement plan. The company providing or overseeing the 401k plan has a responsibility to employees to make sure that the investments — and most importantly the fee structure on the 401k plan — is the best available.

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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