401k Lawsuits: Plan Participant Pandemonium
The DOL has said that it’s digging in its heels when it comes to the April 1, 2012 deadline. 60 days later, plan sponsors will have to provide plan participants with something many plan participants have never seen…what they pay for their 401k plan. Rest assured this will open the flood gates to 401k lawsuits. An AARP study done last year, found that 71% of workers who were surveyed truly believed they weren’t paying anything for their 401k plan. However, truth be told, there are so many hidden and excessive fees that can be found in a 401k that plan participants can end up foregoing over half of their retirement income since compounding costs and excessive fees can devastate any savings effort.
A 2011 DALBAR report says the top 2 reasons why participants become engaged in their 401k plan is if employers take their money away and if they stand to make more money. When you think about it, the 404(a)(5) disclosure requires that participants are told how much is being taken from them, making engagement very likely. According to DALBAR 83% of the 72 million plan participants referenced above are unaware of fees. This is likely to cause millions of unsatisfied participants to apply downward pressure on plan fees and expenses.
Where should plan participants start? They should begin by focusing on the type of investments offered. The 12th edition of the 401k Averages Book found that investment expenses account for 95% of the small plan’s total expenses and 98% of the large plan. “If an employer really wants to cut their 401k costs they need to examine their investment related expenses,” according to David Huntley who co-authored the book. These expenses can be tucked way back in mutual fund expenses making it difficult for plan sponsors and ultimately plan participants to uncover. They can be layered like an onion in a bundled product as well. They can fall under various names such as management fees, advisor fees, expense ratios, 12b-1 fees, etc or can just be called revenue sharing. Any way you cut it, these fees usually profit the advisor or the service provider and can shave thousands off of any savings effort. Plan sponsors who have not shopped their plan or paid attention to the actual fees of the plan are subjecting themselves to a possible 401k lawsuit from plan participants.
An article, "An Expert Explains How to Take Charge and Stop getting Screwed Over by Your Retirement Plan", recommends plan participants take certain steps I agree with such as:
1. Getting out your magnifying glass
2. Gauging whether the fees are reasonable.
3. Not giving up
4. Getting other co-workers involved since there’s power in numbers.
5. Making a complaint to the Department of Labor by calling 1-866-4US-ADOL to file a claim. You’re covered by the whistleblower protection law.
Take a hands-on approach to your company 401k plan. A recent story in Money.msn.com stated that only .2%, less that ½ a percent of 401k participants ever reach the $1 million mark. That’s understandable considering 1% more paid in fees can cost a plan participant roughly $250,000 over the course of a career and a 2% difference can be ruinous!
About Charles Massimo
Recognized as industry expert and guest speaker at national industry conferences, Charles Massimo is a published author and media subject expert on topics ranging from wealth/asset management to investment and financial planning for high net worth families.