Fees Under Fire

Even as Congress examines current 401(k) plan fee structures, companies may have plenty of incentive to revisit the issue now rather than wait for any resulting legislative changes. That incentive comes in the form of class-action lawsuits launched against a number of large companies, including Lockheed Martin, General Dynamics, Bechtel Group, and nearly a dozen others.

The suits, which were launched last fall, allege that the companies violated their fiduciary responsibilities by not properly informing employees about various fees, that the fees were too high, and that plan sponsors did not adequately assess the structure of the fees.

In August, Lockheed lost a motion to dismiss. The company had argued that the complaint was too broad, but a U.S. District Court judge in Illinois disagreed. While a suit against Deere & Co. was dismissed, most others have cleared that hurdle and are moving toward trial.

Companies have long borne some responsibility for understanding fees, notes David Gensler, president of Madison Pension Services. But he says that, given the current climate, companies should diligently document every detail of their plans, including adviser fees, and review the manner in which that information is provided to employees.

That push for better paperwork may receive a further legal impetus: a recent ruling from the U.S. Court of Appeals for the Third Circuit said that employees can still be considered participants (and bring legal actions) even if they have already cashed (or rolled) out of a plan. John Nixon, compensation and benefits partner at law firm WolfBlock, says the ruling means companies will need to maintain records even after employees are no longer active participants, a requirement that may not be easy to meet if companies have changed providers. "A previous provider, which has likely been fired, probably won't be willing" to help out on such recordkeeping, Nixon says. He recommends that companies make this a requirement in future contracts.