Monday, September 18, 2006

401(k) Fee Lawsuits

The Seyfarth Shaw Law firm reported that Schlichter, Bogard & Denton, a plaintiffs’ law firm, filed a wave of complaints involving 401(k) plan fees.
"These lawsuits target large 401(k) plans sponsored by large employers( in the Illinois & Missouri area) name the employer as defendant, and in some cases, plan fiduciary committees and their various individual members. In the "cookie-cutter" complaints, the plaintiffs allege a variety of breaches of fiduciary duties and prohibited transactions relating to fees paid by 401(k) plans"
Seyfarth produced a Presentation on 401(k)Plan Fees for their clients. Plaintiff's attorney Keller Rohrback may be on the fee case as well. It is currently investigating companies that serve as "Investment Providers" for 401(k) plans and the company fiduciaries that retain them in order to determine whether they have breached their fiduciary duties under ERISA by, among other things, causing 401(k) plans to incur excessive management and administration fees or entering into improper fee sharing arrangements with mutual fund companies that are selected by them. (source: Plansponsor)

The Plaintiff firm's must see their window to litigate fiduciary breaches on non-disclosed fees closing because of the new Form 5500 Schedule C disclosure rules to be implemented in 2008.When ERISA was legislated, its intent was to make all plan fees and expenses explicit and transparent. It did not anticipate the emergence of mutual funds and the practice of netting fees, including intermediary revenue sharing arrangements, against assets as is common practice today. This practice makes fiduciary oversight of fees very difficult both in terms of a sponsors ability to understand their own plan's fee details and in having access to comparable public fee data from their peers.

Under the new Schedule C requirements Plans will have to provide more information about third-party financial relationships. Plans will have to identify all service providers that receive $5,000 or more from plan assets. Plans currently must report only the 40 highest-paid service providers. Also, if a plan fiduciary or “listed service provider” received more than $1,000 from a source other than the plan or the plan sponsor, the Plan would have to provide information about the payer, the services and the compensation. Listed service providers include contract administrators; securities brokerages; insurance brokerages or agents; and those providing custodial, consulting, investment advisory (plan or participants), investment or money management, recordkeeping, trustee, appraisal or investment evaluation services. Reportable compensation would include all brokerage fees and commissions, and any “float” or similar earnings on plan assets or deposits retained by the service provider as compensation.


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