Posted by The ALS Group on Jul 28, 2016 4:28:47 PM

401(k) Plan Risk

With the deadline for filing form 5500 literally around the corner (July 31), fees and expenses associated with 401(k) are critical issues for plan sponsors.   One of the most important things a plan sponsor can do is to benchmark their plan fees against the ones in comparable plans, to mitigate their risk for lawsuits or sanctions.  According to the July 20, 2016 article in Bloomberg BNA "New York Accused of Profiting Off Workers' 401(k)", New York Life has been sued by employees who claim that one of the company’s in-house mutual funds carried needlessly high fees that eroded their retirement savings.

While this type of suit had typically been reserved for large corporations, there’s been a game-changer. A recent class-action lawsuit targeting excessive 401(k) fees in a $9 million plan for LaMettry’s Collision could signal the beginning of small- and mid-sized 401(k) plans being scrutinized and subject to litigation. While LaMettry’s suit was dismissed, independent broker Cetera Advisor Networks also finds itself in this uncharted water, at the center of a lawsuit alleging excessive plan fees for a $25 million plan. For additional information, please read "Excessive-fee suit targeting $9 million 401(k) plan could be 'harbinger' for industry"

In the blog that we wrote previously about 401(k) plan fees ("401k Plan Fee Disclosure | Let The Games Begin"), we recommended that you examine and understand the selection process for plan providers and the plan fees. A 401(k) plan fee benchmarking report is a helpful tool in understanding those fees.

With the DOL, IRS and PBGC’s joint proposal of major changes to Form 5500, by requiring more detailed information on issues such as group health plan compliance, plan investments and service provider fees, the need to monitor your risk, starting with a benchmarking report, is more critical than ever. As a risk management consulting firm, we feel it is important to mitigate our own business risks, in addition to advising our clients on mitigating theirs. We perform a benchmarking report for our own 401(k) plan on a regular basis, and strongly recommend our clients and any organization with a 401(k) plan do the same. The benchmarking report measures your company’s 401(k) fees and compares them to other plans held by companies from similar industries, asset-sizes and employee participation rates. You can request a benchmarking report from your 401(k) plan administrator, but ensure it is prepared by an independent third party so it remains unbiased. The benchmarking data will give you a clear look at whether or not your company’s plan fees are reasonable, serves as due diligence in monitoring plan fees and provides a platform for negotiating changes with your provider, if necessary.

Being vigilant and understanding your 401(k) and ensuring you have the proper fiduciary liability coverage in place for your company and 401(k) plan size are just two of the measures your organization can take in mitigating 401(k) plan fee risk and should be part of every company’s risk mitigation strategy.

Should you like to discuss this in more detail, do not hesitate to contact me.

Topics: 401(k) Plan Fee Disclosure, Risk Management Blog, Strategic Risk Management

The ALS Group

Risk Management Blog

We manage more than a quarter billion dollars of premiums for a diverse range of clients around the globe. 

Our areas of expertise include:

  • Enterprise Risk Management (ERM)
  • Cyber Security & Cyber Liability Insurance
  • Construction Management
  • Customized Risk Management Assessments (RMAs)

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