Protection Matters
Business Owners Have a Legal Obligation to Make
Sure Fees in Their Plan are Both Fair and Reasonable.
600,000
The average fine by the Department of Labor for a plan examined and found illegal
Business Owner Warning: The law requires you to “Benchmark” your plan on a regular basis. As the plan sponsor, you have a legal “fiduciary” obligation to make sure that your plan fees are fair and reasonable and that all decisions are made for the sole benefit of the employees. Of the plans examined in 2014, the Department of Labor found 75% of them to be illegal and the average fine was $600,000.
Mass Mutual Settles Excessive Fee Lawsuit
Why Your 401k Is Worth Suing Over?
401k Giant Fidelity Sued Over Its Own plan
Aegon Sued Over Alleged Excessive Fees in 401k
Lockheed Martin Pays 62 Million to Settle 401k Lawsuit
Fidelity is Sued Again Over In-House 401k Plan
Settlement Achieved in Ameriprise 401k Excessive Fee Case ($27M)
Supreme Court Receptive to Investors in 401(k) Case
West Virgin School Employees suing VALIC (plan provider)
Department of Labor to Intervene in a 401k Excessive Fee Lawsuit Northrop Grumman
Business owners, also known as plan sponsors, have a legal “fiduciary” duty to provide a competitive plan that is benchmarked to determine how competitive the plan really is and if the fees are both fair and reasonable. Plan providers don’t make this easy by providing fee disclosures that are 15 to 45 pages long and use very opaque language in how this information is relayed. Compare this with our 1 page fee disclosure offered to our clients. In addition, very few plan providers are making business owners aware of their obligation to benchmark for fear of showing the true cost of the plan that was sold to them. That hasn’t stopped the Department of Labor who recently hired 1000 new auditors (according to CFO Daily) to find plans that are out of compliance. The fines are significant. What’s more disconcerting is the fact that employees are suing their employers and having plenty of success. Not only does AB401k provide a low-cost ultra competitive plan, we also install an independent fiduciary which alleviates significant liability for the employer.
“Seventy-five percent of the 401(k)s audited by the DOL last year resulted in plan sponsors being fined, penalized or forced to make reimbursements for plan errors. And those fines and penalties weren’t cheap. In fact, the average fine last year was $600,000 per plan.”
CFO Daily News – February 25th 2014
% of plan sponsors don’t know the expense ratios of the funds they’re choosing
$164 M
total fees paid by Americans everyday
Disclosure Isn’t Clear Enough
Although fee disclosure rules went into effect in 2012, collectively we have learned little from them. Over 50% of 401k plan participants believe they pay no investment related expenses or that their employer pays them! Nothing could be further from the truth. And more than 35% of 401k plan sponsors indicate they do not know the average expense ratio (of the funds) in the plan that they had a hand in choosing.
401k fees cost Americans nearly $164 million per day, and can have the effect of reducing a participants’ balance available at retirement by 40% to 60%. Its time to get free from the fee factories that dominate the 401k marketplace.
“Still, fees hidden from view can make it hard for 401(k) holders to find out what they are paying. Plan sponsors, usually an employer, have a fiduciary duty to safeguard workers’ retirement accounts. But sponsors don’t always push providers like mutual funds to reduce fees or cut costs.”
New York Times – March 2014