The past ten to fifteen years has given rise to a set of lawsuits against 401k plan administrators over excessive plan fees and revenue sharing agreements between plan administrators and recordkeepers. We are probably approaching the end of this wave of excessive fee litigation against for-profit employers for 401k plans. A new wave of excessive retirement plan fee litigation arises against non-profit plan administrators. Recently nine class actions lawsuits were filed against several major universities for investment fees charged to retirement plan participants in the employees’ 401k and 403b plans. The gist of the litigation is the same as the lawsuits filed against the for-profit employers.
In these lawsuits, the plaintiffs allege the same failure to select and monitor investments which caused employees to pay unreasonable investment fees although lower cost alternatives were available to the plan administrators. Past excessive fee litigation generally claimed employers selected investments for 401k plans without considering the prudence of the fees or intentionally selecting funds that best offset the employer’s plan costs (through revenue sharing agreements with recordkeepers). As a result, the plan administrator violated ERISA by not following the statute’s fiduciary duty requirements.
The difference between 401k and 403b retirement plan excessive fee litigation
A new issue arises with non-profit retirement plans similar in argument but factually distinct. Non-profit employers can offer 403b plans that have unique functions that create different fee problems. 403b plans, unlike 401k plans, can be offered to the participants of a single employer through multiple providers. For example, if your job has a 401k plan then that plan is only available through one recordkeeper. If a 403b is available you may have the option of several recordkeepers to handle your account. The problem with this multi-provider approach, these lawsuits allege, is that it defeats the employer’s ability to leverage plan resources to obtain economy of scale and lower fees for participants.
The shakeout in the 403b industry may be even greater than that presently occurring in the 401k industry. The plaintiff’s argument here is almost identical to the argument regarding fund selection in 401k plans that ultimately prevailed. Employers who failed to use reasonable efforts to minimize unnecessary fees violate their fiduciary duties to participants in a 401k. The same will likely hold true for 403b plans.
We should expect to see the number of these cases rise for the next several years.
Employee benefit attorneys for college retirement plans
If you work for a college where you have a 403b plan and believe the plan administrator has not acted in the plan’s best interests then you should talk to employee benefit attorneys. Employee benefit attorneys understand the federal laws governing 403b and other retirement plans. They can assess whether your employer’s plan has violated their fiduciary duties or your rights under the plan. Their law firms are equipped to help represent you in pursuing your employer’s retirement plan in federal court. Contact employee benefit attorneys in your area for more information.