Lawsuits push 401(k) plan sponsors to cut fees

About 83% of plan sponsors reviewed their fees, and of those, 40% reduced overall fees, according to a new study

Jan 18, 2018 @ 6:03 pm

By Greg Iacurci

Employers are moving to reduce their 401(k) plan costs in greater numbers, largely in an attempt to avoid the fate of peers who've been sued for allegedly excessive fees in their defined-contribution plans, new research suggests.

"[Fee pressure] is really relentless," said Lori Lucas, defined contribution practice leader at Callan, a consulting firm. "[Plan sponsors] are so laser-focused on it because of all the lawsuits."

Roughly 83% of employers assessed their DC plan fees last year and, of those, more than 40% reduced their overall fees, according to a new study published by Callan that examines retirement plan trends. That's up nearly 10 percentage points over 2016.

Litigation attacking retirement plan fees burst on the scene in 2006, when attorney Jerry Schlichter sued several large corporations, such as Lockheed Martin Corp. and General Dynamics.

The prevalence of such lawsuits began increasing in 2015, as plaintiffs were able to win multimillion-dollar settlements and a few court cases, including a favorable judgment at the Supreme Court level in Tibble v. Edison.

Further, the Department of Labor issued its fiduciary rule in April 2016, and parts of the rule have since gone into effect, bringing the notion of fiduciary duty more into the public eye. Plan sponsors, in turn, have grown more aware of their fiduciary duties, which include ensuring participants pay reasonable costs.

Adviser fees have undergone a dramatic compression over the past few years, as have record-keeping fees. NEPC, a consulting firm, found that fees for record-keeping services have been cut by roughly a third since 2012.

Plan sponsors are also changing how they pay their administrative fees, turning more toward transparent forms of payment, such as per-participant dollar fees (a $50 annual fee, for example), instead of revenue sharing from participants' investments.

In its study, which primarily examines large plans with more than $100 million in assets, Callan found only 27% of plans used revenue sharing last year to pay all or a portion of plan administration, compared with 38% the prior year.

Conversely, 55% used per-participant dollar fees, which was up from 42%.

"That's a pretty major trend," Ms. Lucas said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Ron Carson: If you aren't growing you're dying

There are two group of advisers, according to Ron Carson: Those that are expanding and those that are just "hanging on." So, which group do you belong to?

Latest news & opinion

LPL rolls back recruiting policy aimed at driving more assets to its corporate RIA

LPL erases $50 million hurdle for new advisers to join so-called hybrid firms.

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print