Concern over plan fees is nothing new. The DOL has generated heated and seemingly perpetual discussion of the disclosure of fees, but the courts have brought to light another important perspective on 401(k) plan fees. Emily Peterson of Winston & Strawn writes that court rulings in 2013 serve as reminders to plan fiduciaries that benchmarking 401(k) plan fees and expenses merits their attention as well.
Peterson argues that cases last year in which 401(k) participants successfully alleged that employers and plan administrators charged excessive administrative and investment management fees and expenses are a wake-up call for plan fiduciaries. The message? Benchmark those fees and expenses lest you, too, fall prey to a lawsuit.
Peterson cites three examples of such rulings:
• Tibble v. Edison Int’l (9th U.S. Circuit Court of Appeals, No. 10-56406, D.C. No. 2:07-cv-05359-SVW-AGR, March 21, 2013). In Tibble, the circuit court affirmed a ruling by a federal district court in California (Tibble v. Edison Int’l, 639 F. Supp. 2d 1074 (C.D. Cal. 2009)) in favor of beneficiaries who charged that their pension plan was managed imprudently and in a self-interested fashion.
• Huizinga v. Genzink Steel Supply & Welding Co. (U.S. District Court for the Western District of Michigan, Southern Division, CASE NO. 1:10-CV-223, Aug. 23, 2013). In Huizinga, the court ruled in favor of Huizinga, who changed that the company had breached its fiduciary duties under ERISA.
• Nolte v. Cigna Corp. (U.S. District Court for the Central District of Illinois, Case No. 07-2046 (Oct. 15, 2013). In Nolte, the district court affirmed a settlement in a case in which Cigna 401(k) participants alleged that Cigna charged excessive fees, made imprudent and proprietary investments, and engaged in self-dealing.
Peterson argues that fee disclosures themselves are insufficient to equip a fiduciary to assess whether a fee is reasonable. The antidote to that, she suggests, is benchmarking, since it would allow fiduciaries to compare service providers’ fees. Peterson suggests that plan fiduciaries periodically seek and review bids and fee and expense information from at least three service providers.
John Iekel is a writer/editor for ASPPA and its sister organizations, including NAPA Net.
