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Excessive Fees Could Make Your Company’s 401(k) Plan the Next Target of a Class Action Lawsuit

Excessive Fees Could Make Your Company’s 401(k) Plan the Next Target of a Class Action Lawsuit

September 29, 2017

There’s an outbreak of class action lawsuits swarming businesses in America and they are focused primarily on plans with excessive fees, poor performing investments, and conflicts of interest – and too many plan administrators are not paying enough attention.

Plaintiff’s attorneys are licking their chops and are teeing up companies whose 401(k) Plan is not compliant with Department of Labor (DOL) regulation and they are not discriminating against anyone. From the behemoths like Lockheed Martin & Macy’s, to small mom & pop companies, lawsuits are ramping up and the utter volume of them is alarming. 

Almost every single suit that has been filed is targeting ‘revenue sharing’. In order to understand a company’s vulnerability, you have to determine if your plan’s compensation structure paid to a broker is revenue sharing, and if it is, you have a lot to worry about. 

 Most plan administrators don’t understand what revenue sharing is and, in most cases, the plan vendor collecting that “revenue” doesn’t want them to. But, as a plan fiduciary, it is an administrator’s duty to know what the revenue sharing agreement looks like. 

By definition, revenue sharing is a form of indirect compensation that is paid by an investment company to a broker in addition to investment management fees that a broker is charging. The issue with revenue sharing is that it hits the bottom line of the beneficiaries of a retirement plan – your employees. 


Enter the class action suit.


Too many company plan sponsors think that the broker or advisor they’re working with is looking out for their best interest, but the truth is they can’t. Most brokers are not and, in many cases cannot, provide fiduciary services to their 401(k) clients, which means that they are not legally bound to put the best interest of the client ahead of their own. Only Registered Investment Advisors, or RIAs, can provide “co-fiduciary” services and that holds them to a “best interest”, legal standard.  Brokers are not under a legal obligation and because our laws and regulations haven’t been enforced for many years, many companies are sitting on a potential legal time bomb that they have no idea exists.

 Known as the “best interest” rule, the fiduciary standard was fully implemented in April of 2017 and under the standard, 401(k) advisors must now carry fiduciary responsibility alongside the company’s fiduciary. Revenue sharing is now a prohibited transaction under DOL Rules and if a company’s plan contains it, it is a breach of fiduciary duty and you could be personally liable to make good on any losses that your employees incur. 

 Does your plan contain “revenue sharing”? Is your broker unable to be a fiduciary?  If they aren’t, your plan is at risk.  The industry is now facing these issues and it’s time to pay attention.


Your employees are depending on you.