In a far-reaching PlanAdviser interview with 401(k) plaintiff’s attorney Jerome Schlichter, the focus was on plan fees and the duty that employers have in negotiating with third party vendors on behalf of their employees. Courts have agreed with Schlichter that some larger plans are paying too much and others, as in the ABB v. Tussey case, have used fees from 401(k) plans to subsidize other corporate services.
Now that Schlichter has figured out how to get class action status for most of his cases, what’s the future hold for litigation and the industry?
Though he admits that revenue sharing is not illegal, Schlichter thinks that it is a “red flag” and should not be allowed. In particular, he takes issue with asset base fees that go up and down with the market while the cost of services they pay for remains relatively stable. He also thinks that all services should be unbundled, with competitive bidding for each one, instead of providing an incentive for a plan sponsor to use a record keeper’s funds to lower service costs.
Of course, Schlichter’s critics say that asset based charges subsidize participants with lower account balances and that bundling provides efficiencies and lower costs overall.
There’s no doubt that 401(k) fee litigation will continue, with other plaintiff’s lawyers emboldened by Schlichter’s success. The question is whether it will remain up-market where the stakes are higher or, with the help of class action, move to smaller plans — like with the Golden Star v. MassMutual case involving group annuity contracts. If the practices employed by larger plans and their providers have resulted in significant damages, it seems likely that there will be opportunities for the plaintiff’s bar to uncover issues with providers for the smaller, less sophisticated and less well advised DC plans.
