18-years ago, I worked for a company whose 401k offering had high fees, poor investment choices, and poor service. Employees felt powerless with exception to trying to ask good questions at the meeting once a year when the 401k provider came in. Unfortunately, our questions were never well answered and our employer did not hear our desire for improvements to the plan. The good news is that those days are fading quickly and employees are increasingly empowered.
Employees Advocating For Fiduciary Duty
Defined contribution plans like 401k's transferred a lot of responsibility for managing one's retirement investments from the employer to the employee. In an effort to best achieve retirement goals, it makes sense for employees to also be involved in fighting back against high 401k fees and for better investment options. After all, you've got to fight for your own self-interests.
Is There a Checklist I Can Use to Review My 401(k) Fees?
The US Department of Labor published the following checklist for employees.
There is an array of investment options and services offered under today’s 401(k) plans. Answers to the following 10 questions will help in gathering information about the fees and expenses paid by your plan. If you cannot find answers, ask your plan administrator.
401(k) Fees Checklist
- What investment options are offered under your company’s 401(k) plan?
- Do you have all available documentation about the investment choices under your plan and the fees charged to your plan?
- What types of investment education are available under your plan?
- What arrangement is used to provide services under your plan (i.e., are any or all of the services or investment options provided by a single provider)?
- Do you and other participants use most or all of the optional services offered under your 401(k) plan, such as a participant loan program and insurance coverage?
- If administrative services are paid separately from investment management fees, are they paid for by the plan, your employer or are they shared?
- Are the investment options tracking an established market index or is there a higher level of investment management services being provided?
- Do any of the investment options under your plan include sales charges (such as loads or commissions)?
- Do any of the investment options under your plan include any fees related to specific investments, such as 12b-1 fees, insurance charges, or surrender fees, and what do they cover?
- Does your plan offer any special funds or special classes of stock (generally sold to larger group investors)?
This booklet is only the beginning of your educational process. You should ask questions and educate yourself about investments. Monitoring your current investment selections and reviewing the investment options offered under your plan are part of a process that you, as an informed participant, will need to undertake continually.
Keep in mind that the law requires the fees charged to a 401(k) plan be “reasonable” rather than setting a specific level of fees that are permissible. Therefore, the reasonableness of fees must be determined in each case.
Courts Siding With Participants
In recent years, employees have been winning big at trial and pre-trial settlements. In just the 4th quarter of 2015, eleven cases were filed against companies for allegedly violating the Employee Retirement Income and Security Act of 1974 (ERISA). Most of these lawsuits are about high 401(k) fees and conflicts of interest. Because over 80 million households are counting on employee-sponsored plans and individual retirement accounts (IRAs) to supplement Social Security in retirement, the plan sponsors' role as fiduciary will remain front and center.
Do you know if your 401(k) plan's fees are reasonable? Have you ever voiced dissatisfaction about your plan? Leave a comment below.