Excessive Fee Claims Taking On New Targets

Excessive Fee Claims Taking On New Targets
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As the fiduciary landscape continues to change, the risks are elevated. While fee litigation has historically impacted larger-scale organizations, smaller retirement plans have begun to face excess fee litigation in recent years. With this recent surge of excess fee litigation and fiduciary liability concerns, it is important for all fiduciaries to be prepared and understand the current trends to take steps to minimize liability and reduce claims.

 

 

What Is An Excessive Fee Claim?

Plan fiduciaries have several duties to perform for their clients. A piece by Chubb entitled “The War On Retirement Plans” highlights what plan participants say their fiduciaries failed to complete.

Among these duties are to ensure that plan recordkeeping and investment management fees are reasonable and that plan investments perform well. In an excessive fee claim, plan participants allege that the fiduciary failed on both of these duties and breached their fiduciary duties by paying too much to its record keeper and investment manager. 

Excessive fee claims first emerged in 2006, primarily targeting large 401(k) plans with thousands of participants and billions of dollars in plan assets. In recent years however, excessive fee claims have begun targeting all types of plans in all sizes. 

Why Has Litigation Shifted?

One of the main reasons for this shift in excessive fee litigation is law firms who were not previously involved in litigation regarding The Employee Retirement Income Security Act of 1974 (ERISA) beginning to file claims. These law firms are able to model their complaints after complaints filed by firms in taking on bigger cases. 

These cases are extremely expensive and time-consuming to defend should they be brought to trial. This makes mitigating risk exposure crucial.

Mitigating Risk and Reducing Exposure

With this rise of claims, fiduciaries should take all possible steps to minimize their risk profile in order to prevent lawsuits with plan participants. While excessive fee lawsuits can’t always be avoided and winning these cases is never guaranteed, a list outlined by Chubb highlights steps fiduciaries can take to protect themselves.

  • Establish, follow and document a process for retaining recordkeepers and determining their fees. 
  • Establish, follow and document a process for selecting and regularly reviewing plan investments and investment expenses.
  • Retain qualified, independent experts to assist with fiduciary decisions. Don’t rely on benchmarks provided by service providers who justify their own fees and performance.
  • Document the process and rationale behind any fiduciary decision. Be meticulous when deciding to use more expensive products or services and/or going against expert advice.

Mitigating Corporate and Personal Risk

An excessive fee lawsuit can target anyone. Fiduciaries should familiarize themselves with the basic allegations in these claims and review and revise as necessary how they select and monitor recordkeepers and investments. 

Another key component of minimizing risk is obtaining appropriate fiduciary liability insurance. Having a proper insurance plan from an experienced carrier can help reduce personal exposure to excessive fee claims. 

Questions?

In an environment in which plans of all sizes can be targeted, fiduciaries should have an advocate to help mitigate risk. If you have any questions regarding excessive fee claims and fiduciary liability, talk to a trusted RCM&D advisor today.