Nearly every employee of any Chicago-based employer is a participant in some sort of retirement plan offered by the employer: pension plan, cash balance plan, or a 401(k) plan. Participants in 401(k) plans rarely know how much in fees the plan (and therefore, the participants) pay to the service providers. New regulations on disclosure of fees to participants will soon take effect requiring plan administrators to disclose fees charged by service providers to the participants in 401(k) plans.
There has been a wave of lawsuits alleging that certain large 401(k) plans pay excessive fees for mutual funds to service providers. The most recent of which is Renfro v. Unisys Corp., No. 10-2447 (3d Cir. Aug. 19, 2011). In that case, there was lengthy battle over whether Fidelity was a fiduciary with respect to selection of plan investments. The court held it was not, and thus a breach of fiduciary claim could not proceed against Fidelity, following the authority of Mertens v. Hewitt Associates, 508 U.S. 248 (1993). However, the Supreme Court also held non-fiduciaries can be held liable under ERISA § 502(a)(3) in order to unwind a prohibited transaction under ERISA. Harris Trust and Savings Bank v. Solomon Smith Barney, Inc., 530 U.S. 238 (2001). Under ERISA, the service provider will invariably be a “party in interest”, such that the provision of services must be for a reasonable fee, otherwise it is a prohibited transaction. ERISA § 406(a).
The courts should thus stop inquiring into whether there was a breach of fiduciary duty, and just focus on whether the fees charged were reasonable for the service, and if not the service provider should be liable to the plan for the amount of the fee charged that was unreasonable under ERISA § 502(a)(3). If you have a question about fees your 401(k) plan pays, speak with a competent ERISA attorney.
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