Excessive plan fee litigation
Employee Benefit Plan Fee Transparency and Justification Continues To Pick Up Steam
February 23, 2015
News about fee disclosure and excessive fee lawsuits are nothing new in the workplace retirement plan arena. In 2012 the U.S. Department of Labor (DOL) passed rule 408(b)(2) requiring retirement plan services providers to disclose plan fees. Each year since participants in 401(k)-style retirement plans receive these notices. Fee notices are important because for the first time plan participants can see how fees impact retirement plan balances. And they see that the higher the fee, the greater the reduction to their retirement plan balance.
Not so surprisingly, the retirement plan services community did not respond positively to this new requirement. They’ll never admit it but the system they created made fee disclosure harder work than it needed to be. In particular, 12b-1 fees, also known as revenue sharing, an opaque practice by design proved difficult to untangle. Also, service providers felt like they were doing a lot of work to produce notices that very few workers would even look at. By some estimates, they claimed that about 1% of the workers receiving the notices would read it in its entirety and ask questions about it.
No one knows if these estimates were right, but what did happen was an increase in retirement plan fee litigation. Workers started questioning plan decisions and non-decisions that led to what they considered excessive plan fees. Plan participants are suing both retirement plan service providers and employers for having excessive plan fees. Continue Reading...
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Denise Perkins
