401(k) Litigation: 'The Next Asbestos'?
“The vast majority of 401(k) funds are at risk of lawsuits over excessive fees.”
-- James Holland, fiduciary consultant
Short-sellers and the plaintiff’s bar have a lot in common. Short-sellers attack companies they consider over-valued. Plaintiff’s attorneys file class-action suits on contingency against firms they think are committing fraud. Both can win big or lose big. Both are widely hated by corporate America.
Enter Jerry Schlichter, a plaintiff’s attorney whose St. Louis worker injury law firm Schlichter Bogard & Denton last year won a big judgment in federal district court against technology firm ABB and its 401(k) provider, Fidelity Management Trust, a leading provider of 401(k) investment plans.
In a March 2012 ruling that has roiled the retirement world, the court awarded plan participants at ABB $36.9 million, plus court costs and legal fees of $50 million. It was a big victory for Schlichter, who since 2006 has filed a raft of lawsuits over allegedly excessive fees charged to employees for their 401(k) plans.
Although Schlichter and other attorneys have also lost their share of excessive fee class action suits, the ABB verdict, now on appeal in the 8th Circuit, as well as hefty settlements with Caterpillar and General Dynamics, is nonetheless a shot across the bow of the 401(k) industry.
It warns plan sponsors large and small that they need to analyze the plans they offer their employees better and to accept their ERISA-mandated fiduciary responsibility to provide retirement plans with reasonable recordkeeping, administrative and investment fees. And it alerts employees that their plans may be ripping them off, or at least serving them poorly.
Throughout the retirement industry, people are talking about the implications of Tussey et al v. ABB. Some fear it will trigger a tsunami of similar cases, creating the kind of legal disaster that asbestos and tobacco liability cases once provided. Others say it is headed for the US Supreme Court. Either way, it’s widely acknowledged that a new era of fee transparency, fee competition and fee compression has arrived.
Why all the fuss about fees? Small differences in such fees, compounded over a lifetime, can obviously make a huge difference in the amount of savings a worker has at retirement. The Department of Labor estimates that each additional 1% in fees reduces retirement assets by 28% over 25 years....
For the rest of this article by DAVE LINDORFF, please go to Retirement Income Journal