Plaintiff's attorneys have begun filing ERISA class action lawsuits against Fortune 500 companies in the midwest. The plaintiffs are participants in their employers' 401(k) or profit sharing plans that allow participant-directed investing among a menu of investment options. Defendants are the plan sponsors, their directors, and individuals (usually high-level employees) serving as plan administrator or on a plan administrative or investment committee. Plaintiffs allege that the defendants breached their duties under ERISA by causing the plans to pay excessive fees or expenses, unnecessarily reducing the participants' account balances.
Plan fiduciaries are personally liable to plan participants for any improper or excessive fees paid by the plan, so the stakes in large plans such as these can be millions of dollars. And recent investigations by the U.S. Securities and Exchange Commission and other regulatory agencies suggest that service providers often do not adequately disclose fees. Plan fiduciaries are often not aware of all the expenses paid by the plan and therefore fail to ensure that those fees are reasonable or proper. The large number of providers (third party administrators, investment providers or consultants, recordkeepers, trustees or custodians, etc.) makes tracking plan expenses difficult.
Plan fiduciaries must be extremely diligent in monitoring all plan activities, including who the plan is paying for services and how much those services cost. Although the first wave of lawsuits involve midwestern companies, it is simply a matter of time before local employers are named in similar actions. Already, a well-known Seattle law firm is investigating this issue and inviting plan participants to contact them.
Plan fiduciaries are subject to very high standards of care in how they perform their duties and face personal liability for failing to properly do so. Being ignorant of what those duties are or how much a plan is paying for the services it receives ensures a very painful and expensive learning experience.