Compliance

Fiduciaries of Small 401(k) Targeted in Excessive Fee Suit

The lawsuit argues that even a 114-participant, $9 million dollar 401(k) plan can get lower fees on investments and services.

By Rebecca Moore editors@strategic-i.com | May 24, 2016
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In many of the retirement plan excessive fee suits involving large plans, it is argued that the size of the plans' portfolios gives them real bargaining power to negotiate lower fees for investments and administration.

A new lawsuit argues that a $9 million dollar plan also has the ability to negotiate for substantially lower fees than an individual would pay.

The primary argument in Damberg v. LaMettry’s Collision, Inc. is that LaMettry’s 401(k) plan used higher-priced retail class shares when lower-priced institutional class shares were available. The plaintiffs say plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by selecting inappropriate and imprudent mutual fund classes for plan assets that exposed plan participants to excessive fees, even when lower-cost options were available for the same set of investments and when the plan could meet required minimum investment hurdles. 

With the increase in retirement plan excessive fee suits and a wider range of arguments in those suits, this case is one example of how unpredictable it is what plan sponsors will be targeted.

The plaintiffs also accuse plan fiduciaries of failing to have or engage in a prudent process—or any process—for the consideration, evaluation, selection, and active monitoring for these funds or lower fee alternatives.

In addition to the excessive investment fees, the lawsuit argues that the 114-participant plan paid too much for other fees. Plaintiffs claim plan fiduciaries breached their fiduciary duty by selecting an unduly expensive structure for the 401(k) plan—a bundled recordkeeping and investment management structure.

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