Excessive Fee Lawsuits Without Excessive Fees: The Case Of The $30 Recordkeeping Fee
If the recent case of Sigetich v. The Kroger Co., filed in the Western District of Ohio on November 5, 2021, is any indication, we have reached a turning point in which plaintiffs have started suing plans with really low fees. The complaint alleges that the Kroger 401k Plan had a $30 recordkeeping fee, which they claim is 50% too high, but in reality, is lower than nearly every plan in America today. The case shows how the Supreme Court needs to step in and halt the ability of the plaintiffs’ bar to impose improper liability on the fiduciaries of America’s retirement plans, absent legitimate proof of real fiduciary imprudence and harm to participants.
Over Half Of Americans Surveyed Falsely Believe They Pay Low Or No Fees To Manage Their Retirement Accounts
Nearly three-quarters of Americans surveyed do not know how much they are required to pay in fees to manage their retirement accounts, according to a recent survey commissioned by investment management firm Rebalance. Over half of Americans surveyed falsely believe that they pay either no fees, or very low fees, to maintain their retirement investment accounts. Also, nearly one-quarter don’t even know how much they pay in fees.
The Economics Of Providing 401k Plans: Services Fees And Expenses 2020
The study found that 401k plan participants investing in mutual funds tend to hold lower-cost funds, the expense ratios that 401k plan participants incur for investing in mutual funds have declined substantially since 2000, and the downward trend in the expense ratios that 401k plan participants incur for investing in hybrid and bond mutual funds continued in 2020.
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Kroger 401 Plan Breach Of Fiduciary Duty On Fees Erisa Class Action
Like many large companies, the Kroger Company has a retirement plan for its employees. The Kroger 401 Retirement Savings Account Plan is governed by the Employee Retirement Income Savings Act , which is meant to protect the beneficiaries of the plan. This class action brings suit against Kroger and its Board of Directors, alleging they have breached their fiduciary duties to the plan in not working to keep fees and expenses low and monitoring the investment options chosen for the plan.
The class for this action is all participants and beneficiaries of the Kroger Company 401 Retirement Savings Account Plan, from November 5, 2015 through the date of judgment in this case.
Kroger and its Board of Directors are fiduciaries for the plan, because they have discretionary authority or control over plan, the complaint alleges, but breached that duty by, among other things: authorizing the Plan to pay unreasonably high fees for recordkeeping services and failing to disclose to the Plan Participants fees associated with the Plan.
The complaint quotes ERISA itself as saying that fees can significantly reduce the amounts in an account by decreasing its immediate value, and by depriving the participant of the prospective value of funds that would have continued to grow if not taken out in fees. It is therefore important for those who have charge of the plan to reduce fees.
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The War On Retirement Plan Fees: Is Anyone Safe
Almost every employer that sponsors a retirement plan should be concerned about potential liability for a type of exposure known as excessive fee claims. Historically filed against only the largest organizations, an increasing number of smaller retirement plans have faced excessive fee litigation over the past couple of years. With this surge in litigation, it’s important that all fiduciaries, regardless of plan size, understand the history and recent trends relating to excessive fee claims, the plan features that may make it a target of litigation, and steps fiduciaries can take that may reduce exposure to excessive fee claims.
Which Pocket A Guide To Paying Retirement Plan Expenses Out Of Plan Assets
The retirement plan sponsor may have the option to pay for some plan-related expenses out of the assets held in trust for the plan. This may seem like a more appealing option than paying for these expenses from business assets, but how does the sponsor determine which expenses are allowed to be paid from plan assets? This guide will explain which pocket you can use.
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Retirement Plan Excessive Fee Litigation Heats Up This Summer
Until recently, it appeared that plaintiffs’ firms had taken a hiatus from excessive fee litigation targeted at large companies. Now there has been an uptick in fiduciary litigation involving 401k and 403b plans of private employers. Last month, at least three new excessive fee cases were filed in Wisconsin and at least seven additional excessive fee cases were filed in other jurisdictions.
The Math Behind Plan Fee Evaluations
Plan sponsors have heard — and many excessive fee lawsuits state –that larger defined contribution plans, in terms of assets, pay lower fees. But do they? Determining whether fees are reasonable for participants requires an additional layer of calculation, and some fee elements and allocations make it more complicated than it should be.
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A Rosetta Stone For Finding 401k Provider Fees
401k provider services and investments can vary dramatically in terms of breadth, depth, and price. Benchmarking 401k fees on an all-in basis helps normalize these differences, putting the onus on a 401k provider to justify higher fees. This article provides a 3-step process you can use to compare fees, including where to find the administration and investment fees for ten leading 401k providers. In short, a “Rosetta Stone” for finding 401k fees.
K Fiduciary Responsibility And Mutual Fund Fees
Fiduciaries often are aware of administrative and disclosure requirements, but sometimes become negligent when choosing funds with reasonable fees. Even those who are aware can inadvertently fail to select the best mutual fund. While 401k fees have decreased in recent years because of litigation and various DOL regulations, mutual funds can still charge indirect fees that DOL would deem unreasonable. Unfortunately, fiduciaries with little knowledge regarding fee structures may authorize a plan to charge fees, decreasing participant balances.
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Recordkeeping Fees Under The Microscope
Today, the landscape is rapidly shifting, and it definitely seems to be the case that per-participant recordkeeping fees are becoming the expected best practice, no matter what size the plan. Plaintiffs’ attorneys and progressive plan sponsors are driving this trend. Their argument is simply that, with today’s digital recordkeeping technology, it is no more work for the plan provider to administer an account with $1,000,000 versus an account with $100. Thus, the argument goes, it is not reasonable under ERISA for the fee to grow while the service being provided remains the same.
The Kroger Co 401 Retirement Savings Account Plan
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- This Plan is a Profit-Sharing Plan, where employer contributions are variable and are based upon a portion of company profits based upon quarterly or annual earnings.
- This Plan permits Participants to direct the investment of his or her retirement accounts.
- This is a cash or deferred arrangement described in Code section 401 that is part of a qualified defined contribution plan and provides for an election by employees to defer part of their compensation or receive these amounts in cash. It is also known as a 401 Plan.
- This is a plan that provides for total or partial participant-directed account. In other words, this Plan uses a default investment account for participants who fail to direct assets in their account.
DISCLAIMERS
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Best Practices To Reduce Excessive Fee Risk
The role of retirement plan governance has become increasingly important as employers face increased scrutiny of how they operate their 401k plans in the current legal and regulatory environment. CFOs and human resource managers administering 401k plans and serving on 401k plan committees have increasingly been held responsible for fiduciary breaches. Plan fiduciaries should conduct due diligence to reprice services and replace underperforming funds given asset-based fees and significant growth in plan size, due to rising markets and recurring contributions.
What Is The Best Way For Plan Sponsors To Pay Retirement Plan Fees
Companies are becoming more open and willing to pay retirement plan servicing fees. This article focuses on Non-Settlor fees which typically include the following service providers: Third-Party administration services, investment advisory services, recordkeeping platform services, and employee benefit audit services. There are some compelling benefits for a company to pay these plan fees.
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Kroger Announces Plans For Buyout $1 Billion Contribution
Kroger Co., Cincinnati, is going to purchase a group annuity contract from an insurance company, said company spokesman Keith G. Dailey in an email.
The company also plans to make up to $1 billion in pension contributions in 2017, it disclosed in its 10-K filing with the SEC on Monday.
Executives decided to make the moves to address the “underfunded position of the plan,” according to the filing. As of Dec. 31, plan assets totaled $3.138 billion, while projected benefit obligations totaled $4.14 billion, for a funding ratio of 75.8%, the company’s most recent 10-K filing showed. Kroger contributed $3 million to the plan in 2016 and $5 million in 2015.
As part of the move to reduce underfunding, about 12,000 current retirees who have a monthly benefit of less than $1,000 will receive their benefits from an insurance company that is still to be decided, Mr. Dailey said. In addition, “approximately 25,000 current associates with a cash balance benefit will be able to elect a distribution from the plan in the form of a rollover to our 401 plan, a rollover to an IRA, a lump-sum cash payment or an annuity,” he said.
Kroger said in the 10-K filing that company officials believe “a contribution to the plan and payout to participants at this time are strategic opportunities based on the current interest rate environment, the potential future changes to the U.S. tax code and scheduled Pension Benefit Guaranty Corp. fee increases.”
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Adjusted Sales Increased 2%
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Pitfalls In Evaluating Retirement Plan Fees
Benchmarking investment fees is an important function. It’s more than that, it’s critical to fulfilling your fiduciary duty. But “essential” does not translate to “easy,” and there are some common pitfalls in performing that function. This article identifies common problems with benchmarking fees and mistakes that can be made, and how to avoid them.
Benchmarking investment fees is essential to fulfilling a retirement plan sponsor’s fiduciary obligation. However, it can be a complicated task. This article shares the importance of accurately benchmarking investment fees and how to overcome some common plan sponsor pitfalls.
The Northwestern Decision: A Win For Plaintiffs But A Possible Turn In The Tide
While on its face, this decision might appear to be a win for the plaintiffs, the Supreme Court did not go nearly as far as plaintiffs had hoped. And the decision could ultimately signal a harder hill to climb for plaintiffs’ claims in the world of 401k fee lawsuits. In the meantime, plan fiduciaries should take note of the court’s opinion and consider ways to document a record on fees and expenses that is in line with the Court’s decision.
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K Plan Fees Continued To Decline In 2020
The average total plan cost for a small retirement plan declined to 1.20% from 1.23% over the past year, according to the latest 401k Averages Book. The average total plan cost for a large retirement plan also declined, to 0.90% from 0.91%, Joseph Valletta, the author of the book, said in a release. Valletta defines small plans as those with fewer than 100 participants and up to $5 million in assets and large plans as those with more than 1,000 participants and more than $50 million in assets.
Outlook: Cfos 4 Realms Of Risk
Kroger disclosed Monday it will contribute up to $1 billion to its pension plan this year, citing strategic opportunities such as the current interest rate environment.
In a regulatory filing, the nations largest grocer said it believes the pension contribution will significantly address the underfunded position of the plan. The liability will be funded through issuance of debt.
Additionally, Kroger said, certain participants benefit balances will be distributed out of the plan through a transfer to other qualified retirement plan options or a lump sum payout, based on each participants election.
We believe a contribution to the plan and payout to participants at this time are strategic opportunities based on the current interest rate environment, the potential future changes to the U.S. tax code, and scheduled Pension Benefit Guaranty Corporation fee increases, the filing stated.
As of Dec. 31, Krogers pension plan assets totaled $3.138 billion, while projected benefit obligations totaled $4.14 billion, for a funding ratio of 75.8%. Kroger contributed $3 million to the plan in 2016 and $5 million in 2015.
The plans target allocations are: 39% hedge funds, 14% high-yield fixed income, 13.2% global equities, 11% other, 8% investment-grade fixed income, 6% private equity, 5.8% emerging markets equities, and 3% real estate.
This one-time cost is not contemplated in our earnings guidance for the year, it said.
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Gao Finds Most Participants Stumble Over Fee Disclosures
The DOL has required defined contribution plans to provide participants with information on plan and investment fees. During a 2010 news conference, then-Assistant Secretary of Labor of the DOL’s Employee Benefits Security Administration Phyllis Borzi said fee disclosure rules are designed to “make sure everyone knows what they are paying for and how this affects plan balances.” However, a recent Government Accountability Office study found this has not always been the case.
The Economics Of Providing 401k Plans: Services Fees And Expenses 2019
At year-end 2019, 401k plan assets totaled $6.4 trillion, with 37 percent invested in equity mutual funds. In 2019, the average expense ratio for equity mutual funds offered in the United States was 1.24 percent. 401k plan participants who invested in equity mutual funds, however, paid about one-third of that amount — 0.39 percent — on average. The expense ratios that 401k plan participants incur for investing in mutual funds have declined substantially since 2000. This is a 32-page report.
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How Often Should Plan Sponsors Review Their Plan Fees
Without taking the proper measures of disclosing your fees or ensuring they’re competitive and reasonable, your plan offerings probably won’t seem as effective for your employees. As a sponsor, you should know that the higher your plan’s fees, the less your employees will have to contribute to their plans. This is why you want to review your fees to make sure your employees can trust and depend on you to help them save for retirement. But how often should you review your plan fees?
Fee Disclosures Aren’t Working Here’s How To Fix Them
The GAO tested participant understanding of some sample fee disclosures, and the results were disappointing. Almost a decade after the DOL fee disclosure regulations became effective, it is clear that they are failing in their intended goal of demystifying retirement plan fees. Without waiting for the DOL to act, plan fiduciaries can implement the GAO recommendations and insist that their participants get disclosures that clearly provide the essential information they need to make investment decisions.
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Guide To Retirement Plan Fees
As a plan sponsor, you need to identify the fees incurred by your retirement plan and demonstrate a prudent process for monitoring these fees. Through this three-part article, you’ll gain an understanding of the major cost components within your retirement plan, the options you have for paying those costs, and best practice strategies for allocating costs to plan participants.
What’s Driving The Fee Discussion Within The Dc Market
Fee compression is also being driven by forces outside the market, specifically the rash of fee litigation and settlements that have forced plan sponsors and fiduciaries to consider lower-cost investment options. Complicating the question of asset management fees is the increasing pressure on recordkeepers to drive down administrative costs to plans, or potentially drive more suits.
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