In recent years, there has been a surge in litigation under the Employee Retirement Income Security Act (ERISA) concerning excessive fees in employer-sponsored retirement plans. These fiduciary breaches impact the long-term retirement savings of millions of Americans.
Our study on fiduciary breaches under ERISA and the recent trend in excessive fee litigation aims to raise awareness of this critical issue and give you the tools you need to protect your best interests. Let’s take a closer look at the current surge in ERISA litigation and what you can do to keep your savings intact.
How Excessive Fees Can Erode Retirement Savings
Your retirement plan administrator has a fiduciary duty under ERISA to provide you with benefits, cover reasonable expenses, monitor service providers, and regularly compare your plan’s fees with the industry standard.
When your plan administrator fails to take these measures, it can have a serious impact on your retirement savings. According to our study of information provided by the U.S. Department of Labor (DOL), a 1% increase in retirement plan fees can reduce your savings by 28% over the course of 35 years.
This kind of impact can cost you tens to hundreds of thousands of dollars and will make it much harder to retire with dignity.
The chart above, provided by the DOL, shows a visual representation of how a fee increase of as little as 1% can have a significant impact on retirement savings over 35 years. The data featured on the chart assumes an initial retirement savings amount of $10,000, an annual contribution of $5,000, and an annual return rate of 7% without fees.
Recordkeeping Fees
Recordkeeping fees are an example of the unnecessary costs that can negatively affect your savings. Our study of information provided by the U.S.
Office of Personnel Management shows that although competitive rates for recording keeping are as low as $35 a year per plan participant, some plans pay as much as $150 for recordkeeping.
Use of High-Cost Investment Options
Another way that excessive costs can erode your retirement savings is when a plan invests your savings in retail-class mutual fund shares instead of lower-cost options.
Upon our analysis of information provided by the Investment Company Institute, we’ve discovered that 67% of plans have higher-cost investment options despite the availability of lower-cost alternatives.
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The Importance of Benchmarking and Fee Transparency
One way that plan administrators are supposed to keep your fees in check is by “benchmarking.” This entails comparing your fees with those charged by similar plans.
Our analysis of research done by the Plan Sponsor Counsel of America shows that administrators who fail to benchmark pass on as much as a 13% increase in fees to participants.
When administrators fail to employ benchmarking and take other steps to reduce your fees and improve plan transparency, it can take a significant toll on your retirement savings. Fortunately, if excessive fees have impacted your savings, you have the right to take legal action.
The Rise of Excessive Fee Litigation Under ERISA
As mentioned earlier, recent years have seen a marked increase in litigation over excessive retirement plan fees. The following key points from our analysis of statistics provided by The CPA Journal have shed light on this concerning trend:
- Since 2015, over 200 class-action lawsuits have been filed against employers for fiduciary breaches related to excessive fees
- 90 excessive fee lawsuits were filed in 2020 alone
- The number of excessive fee lawsuits increased by 53% between 2017 and 2021
Notable Settlements
Since the upward trend in excessive fee litigation began, there have been several high-profile cases that have resulted in significant settlements. Some notable settlements in this area include:
- MIT settled an excessive fee lawsuit for $18.1 million in 2019
- Johns Hopkins University agreed to a $14 million excessive fee settlement in 2019
As you can see, effective excessive fee litigation under ERISA can have a serious impact on plan administrators, affecting their reputation and finances. These cases, which often focus on excessive fees, poor fund performance, and plan governance lapses, highlight the need for administrators to adopt stricter plan governance and improve compliance with the law.
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Your Rights as a Retirement Plan Participant
When you participate in a retirement plan, your plan administrator must practice fee transparency, which involves disclosing the fees that are taken out of your retirement savings for various reasons.
As mentioned earlier, plan administrators must also review and compare participants’ plan fees with industry standards, ensuring competitiveness on a regular basis.
When your administrator finds that your fees are considerably higher than the industry standard, they are required to uphold their fiduciary duty to you and negotiate a lower rate.
When your plan administrator fails to monitor your plan expenses and take appropriate actions to protect your savings, you have the right to take legal action for losses due to excessive fees.
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Taking Action Against Excessive Fees
Despite recent regulatory updates that focus on improving disclosure and protecting your best interests as a retirement plan participant, many participants are incurring losses due to breaches of fiduciary duty related to excessive fees and other matters.
Participants whose savings are affected by these issues can pursue compensation for losses. Successful claims can result in restitution, giving those affected the funds they need to replace their retirement savings losses and feel confident about their futures. In addition, successful litigation may also lead administrators to make positive changes in plan management practices.
Whether you’re eligible to pursue a fiduciary breach case or not, understanding the dramatic increase in excessive fee litigation under ERISA is important. Learning about this upward trend in legal action that has occurred in recent years can help you monitor retirement plan fees and give you the tools you need to protect your savings.
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