Fee Benchmarking Should Be a Priority in the Wake of 401(k)
401(k) plan fiduciaries that have not benchmarked 401(k) plan fees and expenses against market rates recently should do so in 2025, in light of legal victories secured by 401(k) plan participants. In several noteworthy cases, plan participants prevailed in lawsuits alleging that employers and plan fiduciaries allowed their 401(k) plans to charge excessive administrative and/or investment management fees and expenses. A few examples are noted below, but there are several others.
Fiduciaries of employer-sponsored retirement plans are legally obligated under ERISA (Employee Retirement Income Security Act) to act in the best interests of plan participants. Failure to uphold these responsibilities can result in costly lawsuits, financial penalties, and reputational damage. Several landmark cases underscore the risks of excessive fees, poor investment decisions, and conflicts of interest:
Key Lawsuits & Fiduciary Violations
Huizinga v. Genzink Steel (2013):
- The U.S. District Court for the Western District of Michigan found 401(k) fiduciaries liable for breaching their duties.
- The court ordered them to restore $321,000 to plan participants due to excessive service provider fees.
- This case reinforces the need for fiduciaries to carefully evaluate and negotiate fees with third-party administrators.
Nolte v. Cigna Corp. (2013):
- The U.S. District Court for the Central District of Illinois approved a $35 million settlement in favor of Cigna’s 401(k) participants.
- Fiduciaries were accused of failing to monitor investment fees, leading to excessive expenses that diminished participant savings.
- The ruling emphasized the ongoing duty of fiduciaries to regularly review service providers and expenses.
Tibble v. Edison International (2013):
- The U.S. Court of Appeals for the Ninth Circuit ruled that Edison International’s 401(k) plan fiduciaries failed to investigate lower-cost investment options.
- Fiduciaries were found liable for offering high-fee retail mutual funds instead of lower-cost institutional share classes, resulting in unnecessary participant costs.
- This case highlights the importance of thorough due diligence when selecting and maintaining investment options.
UnitedHealth Group (2021):
- UnitedHealth settled for $69 million following allegations of fiduciary breaches under ERISA.
- The lawsuit claimed that UnitedHealth retained poorly performing target-date funds (the Wells Fargo Target Fund Suite) despite clear underperformance.
- Plaintiffs alleged the company’s financial relationship with Wells Fargo influenced its decision, creating a conflict of interest.
401(k) Excessive Fee Litigation Spiked to ‘Near Record Pace’
Encore Fiduciary reported a 35% increase in ERISA excessive fee litigation, in part driven by a surg
ERISA excessive fee lawsuits surged 35% in 2024, with record filings targeting 401(k), 403(b), and defined benefit plans. This rise follows three years of record settlements, pushing plaintiff firms to introduce new legal theories.
Key ERISA Litigation Trends in 2024
✔ Forfeiture Claims – Lawsuits allege improper forfeiture of unvested employer contributions in defined contribution plans.
✔ Excessive Fees in DB Plans – Claims now extend to defined benefit plan service providers, including actuarial firms and investment managers.
✔ ACA Fraud Allegations – Employer-sponsored wellness programs and self-funded health plans face litigation over misrepresentation and cost shifting.
How Plan Fiduciaries Can Reduce Risk
🔹 Benchmark Fees – Regularly compare fees to industry standards to ensure reasonableness.
🔹 Review Forfeiture Policies – Ensure ERISA compliance to avoid legal challenges.
🔹 Monitor Service Providers – Scrutinize recordkeepers, investment managers, and vendors.
🔹 Enhance Fiduciary Oversight – Document fee negotiations, investment decisions, and compliance actions.
Stay Compliant & Protect Your Plan
With rising litigation and regulatory scrutiny, 401(k) and pension plan sponsors must take proactive steps to reduce fiduciary liability. Need help? Schedule a compliance review today.
Frequency Up
After 18 months of slower ERISA litigation, excessive fee lawsuits surged by 35% in late 2024, with a notable rise in forfeiture fiduciary-breach claims. These 28 new cases (34 total filed) allege that plan fiduciaries breached their duty of loyalty by using forfeited plan assets to offset employer contributions instead of reducing participant contributions. This trend highlights the importance of fiduciaries reviewing forfeiture policies, enhancing documentation, and conducting regular plan audits to ensure compliance and mitigate litigation risks. As ERISA class actions continue to rise, 401(k) and pension plan fiduciaries must take proactive measures to safeguard their plans and avoid costly legal challenges.
2024 Lawsuit Trends
ERISA litigation surged in 2024, driven by an expanded number of law firms filing excessive fee and forfeiture claims. Legacy firms like Capozzi Adler P.C. and Walcheske Luzi LLC fueled the increase, with 28 new forfeiture lawsuits following six initial cases in 2023. With 90% of 2020’s record cases now settled, firms are shifting focus to novel fiduciary-breach theories, including pension risk transfers, wellness program disputes, and Affordable Care Act fraud claims. Notably, fiduciary-breach lawsuits are evolving beyond fee disputes, targeting plan design elements once considered settlor functions. As litigation trends shift, plan sponsors must proactively review plan structures and compliance strategies.
Settlements Hit Another Record
ERISA settlements increased in 2024, with 53 cases settled, up from 42 in 2023 and 31 in 2022. The total settlement amount reached $203.3 million, though this was below the record $352.8 million in 2023. Excluding outliers like the $124.6 million Ruane, Cuniff & Goldfarb settlement, the total remained close to 2023 levels. However, the average settlement declined for the third consecutive year, dropping to $4.6 million ($3.2 million without the $69 million UnitedHealth case). This decline reflects a growing trend of early, cost-of-defense settlements, with 27 cases resolving for $2 million or less.
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Fee Benchmarking
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