IN A RECENT ARTICLE PUBLISHED BY RIABIZ.COM, BRENDAN LITTLE, AN ATTORNEY* AT THE NATIONAL LAW FIRM LEVY KONIGSBERG LLP, COMMENTS ON A RECENT PBS DOCUMENTARY ABOUT 401(K) FEES AND SOME OF THE LEGAL REMEDIES AVAILABLE TO 401(K) PARTICIPANTS AND PLAN SPONSORS.
NEW YORK, New York, June 4, 2013 – In response to a new documentary titled “The Retirement Gamble,” attorney Brendan Little from the law firm of Levy Konigsberg LLP discusses the legal remedies related to excessive 401(k) plan fees. The article was published on the financial advisor publication RIABiz.com. The documentary by author Martin Smith aired on PBS’s Frontline on April 23, 2013, and takes an unflattering look at the retirement savings industry in America1. The documentary has received significant press coverage, mainly, for publicizing the harm done by the fees charged by some service providers to 401(k) plans2.
As the documentary notes, the effect of the fees on an individual’s retirement wealth is staggering. John Bogle, a long-time advocate of low-cost investments and founder of the Vanguard Group, explains on Frontline that a retirement fund with an average growth of 7% will have a balance that is 63% less at the end of a 50-year career if it is subject to a 2% annual fee. Also noted by Frontline, “71 percent of mutual fund savers were not even aware that they were paying any fees at all,” according a recent AARP study3.
Responding to the documentary, Little suggests that “[t]hough it is mostly ignored by Smith’s report, a significant number of 401(k) participants and their employers have successfully resorted to litigation to recover excessive 401(k) fees.”
“Changing plan service providers or negotiating lower fees can certainly reduce future costs. But neither action will recover excessive fees that have already been paid. In certain cases, a plan sponsor – the employer – may even have a duty under ERISA to seek recovery of any unreasonable fees paid by its employees.” Little says.
A new rule issued last year by the U.S. Department of Labor does require greater disclosures of fees by 401(k) service providers4. But it also helps place “the burden of monitoring the fee information contained in these lengthy disclosures squarely back on employers and participants,” according to Little.
The article goes on to explain that while there is no bright-line rule, some red flags that might be associated with ERISA-violating 401(k) fees are:
- The service provider offers its own funds, or an affiliate’s funds, as investment options;
- The annual fees or “expense ratios” of the plan’s investment options are significantly above average for that type of investment – e.g., .77% for mutual funds, .58% for target-date funds, and .12% for index funds5;
- The service provider engages in “revenue sharing” agreements in which an investment fund pays back part of its fees to the service provider;
- The plan offers few low-cost funds or only actively-managed funds;
- The service provider charges “separate account” or “wrap” fees on top of the fees charged by an underlying investment fund;
- The plan investment options include “retail” share classes where “institutional” shares, which have lower costs, are available.
Levy Konigsberg LLP is a national law firm with experience in ERISA matters, including the recovery of excessive 401(k) plan fees. If you are a 401(k) participant or plan sponsor and concerned about the level of fees charged by your 401(k) plan, contact the firm at 1-800-988-8005 or by submitting an online inquiry at this website for a no-cost consultation about the legal options that may be available to recover or reduce your 401(k) plan fees.
* Brendan Little is an attorney licensed in Washington State and an associate at LK. This article is not legal advice. Attorney Advertising: Prior results do not guarantee a similar outcome.