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Expert Tips on Avoiding 401k Plan Fee Lawsuits

401k plan fee lawsuitsAvoiding 401k plan fee lawsuits requires a measure of discipline and diligence according to several industry experts.

401k plan fees continue to be the epicenter of retirement plan litigation. Plan sponsors are given a wide measure of latitude under ERISA as to how to allocate associated plan fees, but those allocation choices often may carry significant consequences if they do not conform to the basic principle of being “solely in the best interest of participants.”

That guiding principle of being solely in the interest of participants does not mean that employers are bound to search for the cheapest fees from providers; it means that they are required to ensure that fees are reasonable. “Reasonableness” and cheap are not the same thing under ERISA, and plan sponsors should understand the nuance. Kameron Jones, and RFP (request for proposal) Specialist at NFP Retirement states:

Under ERISA, employers — as plan fiduciaries — must ensure that only reasonable expenses are being paid by plan participants. This process should be comprehensive, measurable and documented with care, skill, prudence and diligence.

But before determining  the “reasonableness” factor of fees, it is important to set a framework for fee structure. This framework is addressed. Jones offers the following guidelines to understanding plan fees:

  • What am I buying?
  • How much does it cost (investment, administrative and advisory services)?
  • Who is going to pay (participants and employers)?
  • How are they going to pay?
  • What model is best for us?

The answer to how the fees will be paid can be especially tricky as there are a number of complex options including variable revenue sharing, level revenue sharing and zero revenue sharing.

According to Fred Barstein, Editor-in-Chief at 401kTV, revenue sharing plans should be eliminated from DC plans altogether because they obscure transparency, give rise to conflicts of interest and are inherently unfair.

In determining reasonableness, Jones suggests:

  •  Once per year: Do a general benchmarking of fees
  • Every three years: Roll out a specific benchmarking of fees and investment opportunities to the marketplace, and
  • Every six years: Establish and follow a prudent process.
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Timothy Kelly

Tim Kelly is the Founder of ForexTV. Since its inception in 2003, ForexTV has been a global leader in forex news and has expanded its news coverage to multiple industries. ForexTV is now one of the most recognized brands in global financial news. Mr. Kelly was also the creator and founder of Retirement Intelligence.

Mr. Kelly is an expert in online marketing, search engine optimization, content development and content distribution. He has consulted some of the top brokerages, media companies and financial exchanges on online marketing and content management including: The New York Board of Trade, Chicago Board Options Exchange, International Business Times, Briefing.com, Bloomberg and Bridge Information Systems and 401kTV.

He continues to be a regular market analyst and writer for ForexTV.com. He holds a Series 3 and Series 34 CFTC registration and formerly was a Commodities Trading Advisor (CTA). Tim is also an expert and specialist in Ichimoku technical analysis. He was also a licensed Property & Casualty; Life, Accident & Health Insurance Producer in New York State.

In addition to writing about the financial markets, Mr. Kelly writes extensively about online marketing and content marketing.

Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art.

Mr. Kelly has been a decades-long community volunteer in his hometown of Long Island where he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York.

Before creating ForexTV, Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets, where he created Bloomberg Personal Magazine with an initial circulation of over 7 million copies monthly.
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