Class Actions Challenging 401(k) Plan Fees Increase Sharply
There has been a dramatic spike in proposed class actions challenging 401(k) plan fees. While only 20 of these cases were filed in 2019, more than 90 of them were filed in 2020, and this trend shows no sign of abating in 2021. The increase has been driven by copycat-style complaints filed by a handful of plaintiff’s law firms.
Generally, these complaints include claims alleging:
Excessive administrative fees (based on use of more than one recordkeeper; absence of competitive bidding; use of asset-based fees and revenue-sharing instead of, or in addition to fixed-dollar fees; failure to monitor fee payments to recordkeepers; and/or, occasionally, kickbacks);
Excessive management fees and performance losses (duplicative investment options for each asset class, which underperformed and charged higher fees than lower-cost share classes of certain investments);
and A failure to monitor and evaluate appointees.
In addition, recent actions challenging the inclusion of affiliated funds include claims that:
The funds charge excessive fees;
The funds are imprudent investment options because, net of fees, they offer inferior performance to available alternatives; and
The payment of fees to an affiliate constitutes a prohibited transaction. In 2020, the outcome in fee cases was mixed.
Some district courts rejected these claims, while others denied motions to dismiss or for summary judgment in full or in part. Some of these cases settled in 2020 in amounts ranging from several million dollars to almost $40 million.
The law is expected to “smooth down” in defendants’ favor, tracking what occurred in the past when plaintiffs challenged employer stock funds held in 401(k) plans.