Tag Archives: fees

Human Resources Administrator found guilty in 401(k) Lawsuit!

In Tibble vs Edison International, a long-running case that ended up at the supreme court, The Human Resources VP was found guilty.  The case involved improper selection of funds – by using retail funds instead of the available institutional funds, which costs the plaintiffs $7,000,000.  Additionally, they used the retail fees to offset management fees charged by their record keeper.

It is important to understand how these seemingly small decisions can have enormous repercussions.  Recent fee-oriented suits by employees at Nordstrom, BlueCross Blue Shield, Lockheed Martin, and a number of educational facilities show that these suits are not going away.  Further, audits are increasing, as the Department of Labor has found that 70% of plans are not in full compliance.

According to a 2012 article in Financial Advisor Magazine, “An estimated 70% of retirement plans audited by the Department of Labor (DOL) in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors–all of which ending up costing plan fiduciaries about $450,000 per plan, according to the department.” 

Small Businesses overpay for 401k plans

This article was published in MarketsInsider on 12/13/17.  Click Here for the full article.

America’s Best 401k took a closer look at the asset-based fees paid by small business owners and their employees and found that many overpay for their 401(k) plans… The industry has reported (on page 50 at the link here) a median cost for plans with 100 participants or more, and $1 million or more in assets, of just 0.93% of plan assets per year, with the rate dropping sharply as assets exceed $10 million and more to as low as 0.27% of plan assets per year. It’s a different story for small plans, according to America’s Best 401k’s new white paper: fees are considerably higher, nearing 2% of plan assets per year in the case of one provider.”

You are required to Benchmark your fees annually.  Are you aware of how much you plan really costs?

 

NYU Participants File Second Excessive Fee Complaint

From Plan Sponsor Compliance Section 11/20/17.  For the full article, click here.

 

Participants in the New York University and related plans are making a second attempt to sue fiduciaries for excessive fees.

After a federal district court judge found most claims in an earlier complaint were not plausibly alleged by the plaintiffs, they filed a second complaint in the U.S. District Court for the Southern District of New York. This case was filed against NYU Langone Hospitals, NYU Langone Health Systems, the retirement plan committee, and several named defendants.

As with the first case, which included the university’s Faculty Plan, the participants allege that instead of using the plans’ bargaining power to reduce expenses and exercising independent judgment to determine what investments to include in the plans, the defendants squandered that leverage by allowing the plans’ conflicted third-party service providers—TIAA-CREF and Vanguard—to dictate the plans’ investment lineup, to link its recordkeeping services to the placement of investment products in the plans, and to collect unlimited asset-based compensation from their own proprietary products.

In the new complaint, the plaintiffs attempted to offer more evidence that their claims were plausible.

For example, previously, U.S. District Judge Katherine B. Forrest dismissed all of the plaintiffs’ loyalty claims, finding that the plaintiffs failed to plead sufficient facts to support the loyalty-based claims. “A plaintiff does not adequately plead a claim simply by making a conclusory assertion that a defendant failed to act ‘or the exclusive purpose of’ providing benefits to participants and defraying reasonable administration expenses; instead, to implicate the concept of ‘loyalty,’ a plaintiff must allege plausible facts supporting an inference that the defendant acted for the purpose of providing benefits to itself or someone else,” she wrote in her opinion.

Would your 401k plan survive the suit against Nordstrom?

The suit, which also names the Nordstrom 401(k) Plan Retirement Committee as being in breach of its fiduciary duty, says that while most large retirement plans have been whittling away at plan and administrative fees, Nordstrom’s “administrative fees increased by 30% from 2011 to 2016,” according to the complaint.

Nordstrom “failed to adequately and prudently manage the plan,” the complaint alleges. “It allowed unreasonable fees to be incurred by participants; it did not act prudently to lower costs; it failed to use lower cost investment vehicles; and it made inadequate disclosures on fees.”

Its a shame that, in this day and age, any employer would be in this position, as our clients understand-  it is easy to protect on this issue.  The question that will arise is can Nordstroms committee show documentation that the fees were “reasonable and necessary” for running the plan the emploiyer desired.  you don’t have to have the lowest fees, nut you do have to be conscious of them and document the decisions you make.

 

 

Retirement Plan Trustee? Read this!

image of retirement plan

SUMMARY-  Duke University may be liable:  they used multiple administrators, raising costs.  They had 400 investment options, limiting their ability to lower costs.  The Prudent Man rule comes into play again, and they failed to replace historically poor performing investments. – Reeve

While several claims were dismissed, several were allowed to move forward.

Read more ...

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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