ERISA Claims
What Is ERISA and Why It Matters
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty.
Claims
Excessive 401(k) expenses litigation, also known as excessive fee litigation, is a significant area of focus in the realm of retirement plans governed by the Employee Retirement Income Security Act of 1974 (ERISA).
Core of the Litigation
- Breach of Fiduciary Duty: The crux of these lawsuits often centers on claims that plan fiduciaries (typically the employers) have breached their duties under ERISA by allowing retirement plans to charge excessive fees for services like plan administration and investment management.
- ERISA Requirements: ERISA requires plan fiduciaries to ensure that plan fees are reasonable in comparison to the quality and scope of services provided.
- Excessive Fees: Plaintiffs allege that the fees charged are unreasonably high, impacting the growth of plan participants' retirement savings.
Key Aspects
- Rise in Litigation: Excessive fee class action lawsuits have seen a significant increase, particularly in recent years. 2024 saw a 35% surge in ERISA excessive fee litigation, reaching a near-record pace.
- Focus: We investigate large plans with millions of dollars in assets, and we also litigate against smaller plans as well.
- Settlements: Many legacy cases have been settled, with a notable increase in the number of settlements. However, the average settlement amount has decreased, potentially indicating a willingness by some firms to accept earlier, smaller settlements.
- Plan Design Challenges: A growing trend in the litigation is a shift toward challenging plan design, rather than just traditional challenges to fees and investments.
Impact on Retirement Savings
- Reduced Growth: Excessive fees can significantly impact the growth of retirement savings over time, potentially costing participants tens or even hundreds of thousands of dollars in retirement.
- Compound Interest Impact: High fees reduce the benefit of compound interest, which is crucial for long-term retirement savings growth.
Avoiding Excessive Fees
- Understand Plan Fees: Plan participants should understand the various fees associated with their 401(k) plan, including administrative, investment, and recordkeeping fees.
- Review Fee Disclosures: The Participant Fee Disclosure form provides detailed information about a plan's fees.
- Choose Low-Cost Investments: Opting for lower-cost investments, such as index funds, can help minimize fees.
- Communicate with HR: If participants are concerned about high fees or limited low-cost investment options, they can discuss these issues with their HR department or plan sponsor.
- Fiduciary Duty: ERISA imposes a fiduciary duty on plan administrators to act in the best interest of plan participants and beneficiaries.
- Prohibited Transactions: ERISA prohibits certain transactions between a plan and parties in interest, including plan fiduciaries, unless specific exemptions apply.
- Reasonable Compensation: ERISA allows plans to pay reasonable compensation for services, but prohibits excessive fees.
- Excessive Fee Claims: Participants can sue if they believe fees paid by the plan are unreasonable, causing a loss to the plan.
Examples of Excessive Fee Claims
Claims often target fees charged by recordkeepers, especially when they are perceived as higher than comparable plans.
Lawsuits may allege that investment managers are charging excessive fees for managing plan assets.
Understanding Excessive Fees in 401(k) Plans
401(k) plans are a critical part of retirement planning for millions of Americans. Many participants are unaware that their retirement savings may be diminished by excessive fees. These fees can come in many forms, to include administrative costs and investment management fees. Some fees are necessary for plan operation, of course, however federal law—specifically the Employee Retirement Income Security Act of 1974 (ERISA)—requires that fees charged to a 401(k) plan be reasonable and disclosed.
Legal Protections Under ERISA
Plan fiduciaries, typically employers or designated administrators, have a legal duty under ERISA to act prudently and solely in the interest of plan participants. This includes the responsibility to regularly review plan service providers, evaluate plan investment offerings, and ensure that fees are justified by services received. When fiduciaries do not perform these duties—for example by allowing a plan to pay inflated fees or by not including low-cost investment selections—those fiduciaries may be liable for breaching those duties.
How We Help
Our firm can represent employees and plan participants in claims involving excessive 401(k) fees. If you suspect that your retirement savings have been diminished due to inadequately disclosed or unreasonable fees, then we can help you understand your rights and explore legal options. Protecting your retirement future starts with transparency and fairness. We are committed to helping you receive both.