Employers sold employees on defined contribution plans like the 401(k) by convincing them that the plans gave them more control over their retirement savings. They decided how much of their pay to contribute and what investment funds to contribute to. Also, when they left the employer, they could take their retirement savings account with them. This was in contrast to the defined benefit pension plans that preceded 401(k) plans and that the employer controlled 100%.

But they also downplayed or ignored the risks and challenges of 401(k) plans. Or, maybe, employers had no idea what they were getting into when they started dumping their pension plans for 401(k) plans. They purchased prototype 401(k) plans and hired third party vendors to design fund lineups and serve as record keepers. They disseminated plan information to employees, collected contributions that they then sent to their vendors and called it a day.

Of course, sponsoring a 401(k) plan is not as easy as what I just described, but my point is that employers admittedly had no or very little idea how much these plans were costing workers. And there is little evidence that plan fees were ever something employers paid much attention to. Sure they were happy when their hired plan administrators offered them lower cost funds, but they were not the ones initiating the action.

However, federally required fee disclosure has changed all that. And so has the many 401(k) plan fee related lawsuits. It is these lawsuits that will have the greatest impact on the future of workplace 401(k) plans; not the alleged threat of federal or state IRA plans. All it will take is one significant decision against a large employer and the panic will begin. But even if that does not happen, the energy and resources required to address these lawsuits may make sponsoring a 401(k) plan a real hassle for employers. That's not to say employers will stop sponsoring 401(k) plans but they are feeling the pressure to not just monitor plan fees but to negotiate ever lower fees. It's a lot more work than they ever thought they would have to do and that's a good thing.

“So if it takes a few dozen lawsuits or settlements for employers to do more to protect worker retirement accounts from high fees, so be it.“

Employers were not as engaged in the management of the retirement plans they offered as they should have been. They weren't looking out for the very best interests of plan participants in regard to plan fees. They never questioned the millions and millions of dollars the financial services industry made for their routine services. So if it takes a few dozen lawsuits or settlements for employers to do more to protect worker retirement accounts from high fees, so be it. It's about time.