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It's that time of year again when, dark forces are looming and the ghouls and goblins are hiding in every corner waiting to strike. You may be safe... but your heart begins to beat faster as you feel them getting closer. But it's not the monsters; it's the high fees haunting your retirement plan. High fees can be the fuel of nightmares, complete with the threat of losing clients and the horrors of litigation for advisors. Luckily, there is a way to make your high fee fears to vanish before your client's very eyes like a shadowy figure disappearing into the night... Plan Fees.

A multinational biotechnology company based in Cambridge, Mass., has agreed to pay $9.75 million to retirement plan participants and beneficiaries to settle a lawsuit over alleged ERISA violations, according to a recent settlement notice filed in a U.S. District Court in Boston. Biogen, which specializes in therapies for neurological disorders, was accused of failing to properly monitor its 401(k) plan’s investment performance and neglecting to protect participants from excessive fees. The case serves as a reminder of the critical importance of fiduciary responsibility and diligence in managing retirement plan fees, especially in today's litigious and complex environment.

As a retirement plan advisor, one of the most critical parts of your job is ensuring reasonable plan fees. High fees can erode retirement savings and lead to legal entanglements if not properly managed. But having powerful and robust tools at your disposal can help you discharge your fiduciary duty more efficiently and effectively — as well as help provide actionable solutions.

Retirement plan fees have garnered increased attention in recent years due in part to a growing number of lawsuits filed against employers. Since 2020, more than 170 excessive fee suits have been filed in the U.S., leading to tens of millions of dollars in settlements.

One of the primary duties of retirement plan advisors is to help ensure their clients’ fees remain reasonable. But between volatile markets, seismic shifts in American household finances, increased fee litigation and changes within the 401(k) industry itself, it’s become even more critical to keep a watchful eye on fees. 

Due to the recent uptick in 401(k) lawsuits, it could be easy to assume that the best course of action is to always obtain the lowest possible fees across the board. But at the crux of these legal actions is the supposition that fees are too high for services provided. What’s considered reasonable isn’t a set dollar amount, and a reasonable fee might not have to be the lowest available, depending on the details and needs of a plan. Here are some instances where higher fees may, in fact, be justifiable.

Food manufacturing powerhouse Kellogg was recently sued by a former employee, who alleges that the company failed to meet its fiduciary duty in administrating its 401(k) plan. The suit claims that, since at least 2016, Kellogg allowed excessive recordkeeping and managed account fees to accrue and did not take timely action to keep employee-covered fees reasonable. The lawsuit names the company, its board of directors and two separate committees that helped manage the company’s plan.

As the U.S. struggles to navigate the current bear market, plan sponsors may feel there’s little they can do to help employees’ retirement savings weather the current economic storm. As a trusted advisor, many will look to you for guidance and reassurance. And while you can’t move markets (if you can, please let us know), this is a good time to encourage sponsors to focus on aspects of their plan they can exert greater control over.

Over the last two years, approximately 150 ERISA lawsuits challenging purportedly excessive retirement plan fees have been filed in U.S. federal court. However, more than a dozen of those cases had been put on hold pending a recent Supreme Court case — Hughes v. Northwestern University — examining the plausibility of a breach of fiduciary duty claim by current and former university retirement plan participants. In January, SCOTUS delivered its opinion, ruling that the petitioners, originally dismissed by a district court and upheld by the U.S. Court of Appeals for the Seventh Circuit, did in fact plausibly state their claim. It vacated the Seventh Court ruling and remanded the case for further review.

For more than 15 years, institutional investment consulting firm Callan has released an annual survey designed to uncover industry trends and help sponsors gauge their retirement plan offering relative to others. And while the organization offers numerous insights in its 2022 Defined Contribution Trends Survey, responses from more than 100 sponsors revealed that maintaining a sharp focus on fees will be the top priority for plans in the coming year.