401(k) Fee Lawsuit Comes Way Down Market

I've blogged before about several recent ERISA-related 401(k) excessive fee lawsuits. In 2006, plaintiff law firm Schlichter, Bogard & Denton brought these suits against a number of Fortune 500 companies including Lockheed Martin, General Dynamics, United Technologies Corp, Bechtel Group, Caterpillar Inc, and International Paper. Several of these cases have been dismissed in 2009.

It's not surprising this litigation began with the Fortune 500 considering these plans had billions of dollars invested. Generally speaking, large plans have savvier plan fiduciaries, greater oversight and more consistent process (which most likely played a role in the dismissal of these lawsuits).

However, in my experience, the small plan market (e.g. under $50 million in plan assets) has much less fiduciary oversight and therefore, much greater potential liability for plan fiduciaries. Read this previous post for some supporting data. I've been saying to whoever will listen for some time that it's only a matter of time until these lawsuits come down market and begin to affect the smaller plan market.

Thus, I wasn't necessarily surprised when I read this article in InvestmentNews about an excessive fee lawsuit brought against a $2 million plan.  Here's the kicker though - rather than naming the employer in the suit, the participants are suing the plan's three service provider's including the investment adviser, record keeper and custodian, alleging they forced participants to pay “secret” and “excessive” fees.

It will be fascinating to see the outcome of this lawsuit and could no doubt have a major impact on the marketplace.