Class Action Certification and 401(k) Fees
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According to Class Action Litigation Report ("Court Certifies Class Action Alleging Fiduciary Breach in Charging Excessive Fees, July 25, 2008), a U.S. federal court has granted class action status to a claim by 401(k) plan participants that they were forced to pay "unreasonable" fees to service providers. Alleging that Kraft Foods Global Inc. plan fiduciaries failed to keep a lid on costs related to recordkeeping and asset management, this case may raise the stakes for Corporate America, with at least a dozen other "excess fee" cases awaiting adjudication.
Filed in October 2006, the original complaint describes the four individual members of the Benefits Investment Committee ("BIC") as having "the authority and discretion to control and manage the investment operations of the Plan," thereby rendering the BIC a named fiduciary according to ERISA. Click to read the original complaint and the order on class certification.
On a related note, the U.S. Department of Labor ("DOL") proposed its new "Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans," (published in the Federal Register, July 23, 2008). Written comments will be received by the DOL on or before September 8, 2008. If approved, 401(k) plan sponsors will have to report details about fees and expenses to participants. Interestingly, the U.S. House of Representatives deferred a decision on requiring enhanced 401(k) plan disclosures. Interested persons may want to watch Bloomberg's video entitled "The Truth Behind Hidden Fees in 401(k) Plans" (June 19, 2008) in which 17 separate fees are cited as eroding investment returns.
As countless employers switch to defined contribution plans, putting more responsibility on individuals as to how their monies are deployed, the economic impact of fees becomes arguably even more important than before.
