Courts - Iowa Lawsuits over 401(k) fees driving costs down Number of cases against large companies has accelerated

By David Pitt AP Personal Finance Writer DES MOINES, Iowa (AP) -- Workers protesting fees paid out of their 401(k) accounts want to know what the money is used for, who gets it, and proof that the charges are justified. And they're going to court to get the answers. Such lawsuits heat up whenever there's a major stock market downturn, said Fred Reish, an Los Angeles attorney who specializes in employee benefits law. "You can almost take a look at the stock market, note when the bottom has hit and put a pencil mark on your calendar. One year later will be the beginning of the litigation," he said. "It's almost like clockwork." The number of cases against large companies including Kraft Foods Inc. and Wal-Mart Stores Inc. has accelerated, and now mid-sized and smaller companies are becoming targets. "There's clearly been an uptick in the past five years. It's been significant," said Matt Gnabasik, managing director of the Blue Prairie Group, a Chicago-based retirement plan consultant. The fear of lawsuits has been enough to push companies offering 401(k) plans to improve oversight of fees and work harder to lower them. The average 401(k) plan pays about 1.5 percent of assets annually in fees, says the Center for Retirement Research at Boston College. In the average plan, workers pay half the cost through disclosed fees. The other half of the costs are not always clear and may be shaved off the investment returns of a 401(k) account holder. Generally speaking fees for more than a half dozen services may be charged including recordkeeping, administration, brokerage and investment management. In addition, several other indirect fees and expenses could be charged, said Marcia Wagner, a Boston-based attorney specializing in employee benefits. The fees are significant because a 1 percentage point difference in fees would reduce overall retirement income by 28 percent over a lifetime of saving, according to the Department of Labor. Here are a few answers to questions about 401(k) fee lawsuits and what they mean to plan participants. 1. What drives retirement account fee lawsuits? In 2001 a group of small companies with 401(k) plans sued Nationwide Insurance and its financial services business, which provided their plans. The case alleged Nationwide made deals with mutual funds offered in its plans to share some of the investment revenue. The lawsuit claimed the deal violated the federal law called ERISA -- Employee Retirement Income Security Act. The law dictates how employers and plan providers must behave when overseeing worker retirement funds. Nine years later, the case continues to drag on in the courts, but a Connecticut federal court judge's initial ruling in favor of the plaintiffs opened the door to this new area of litigation targeting retirement fund fees and who had fiduciary responsibilities. In 2006, a new series of lawsuits began showing up on federal court dockets in which workers accused employers, mostly large companies, of allowing excessive fees. Since then dozens of cases have been filed. They tend to drag on in the courts for years and cost companies hundreds of thousands of dollars -- if not millions -- to defend against. 2. What retirement plan fee issues seem to generate the most lawsuits? A company offering a 401(k) plan must name a person or group of people as the primary fiduciary of the plan, which will have ultimate authority for overall management. It may be someone in human resources, or could be a committee formed of company executives. The fiduciaries must carry out duties prudently as defined by the law, follow the written guidelines for the plan, diversify plan investments, and pay only reasonable expenses. Whether the fiduciaries are appropriately handling these responsibilities is frequently at the center of litigation. Many cases allege a company has paid excessive investment management and administrative fees to 401(k) service providers. Among about a dozen large companies sued in recent years were The Boeing Co., Caterpillar Inc., Deere & Co., Kraft Foods and Wal-Mart. The allegations centered around whether the companies carefully considered fee agreements, whether they paid too much and whether they violated federal law by failing to disclose to participants some of the fees. The Boeing case, among several others remain active in the courts. 3. What does all this mean to investors with 401(k) accounts? Detailed fee reports are coming. The Department of Labor on July 15 announced a new regulation. It requires any service provider paid more than $1,000 in connection with a retirement account plan to provide detailed fee reports to investors. That includes brokerage services, recordkeeping companies and major providers and administrators of 401(k) plans including Fidelity Investments, The Vanguard Group, Principal Financial Group and Charles Schwab Corp. Labor officials will give them a year to prepare for the new rules, making the effective date July 16, 2011. A second Labor Department regulation will be released in a few months that requires employers to provide workers with details about the fees charged for the choices they make in their retirement account. Published: Thu, Jul 22, 2010

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