Legal Alerts

Employers Liable for Breach of Duty to Monitor Retirement Plan Fees and Investments


There have been a number of lawsuits recently accusing employers sponsoring retirement plans of breaching their fiduciary duties in the selection of investment funds and the payment of excessive fees by participants in self-directed plan investments. Recently, a large Minnesota employer agreed to pay $17.5 million to settle a class action lawsuit accusing the employer of improper fund selection and excessive fees. Results in other cases have been mixed.

Also recently, the Department of Labor (“DOL”) has issued a number of regulations that require or will require increased disclosure to retirement plan sponsors and participants of retirement plan investment and administrative fees. In addition, the DOL has indicated plan sponsors should emphasize fiduciary compliance in the area of fees. (DOL information for plan sponsors and participants can be found here.)

With increased scrutiny and potential penalties, we strongly encourage all employers to review fee arrangements and make certain they understand the fees and services being provided to their retirement plans. It is important and beneficial to compare the fees and services provided to your plan to what is available in the marketplace. Some benchmarks that retirement plan vendors, such as brokers and mutual fund representatives, provide include funds and fees that are not appropriate comparisons. For example, the investment fees for mutual funds sold to individual investors may not be an appropriate comparison for plans with larger amounts to invest, since most mutual funds provide lower fees for different classes of investors. Of course, fees should not be the only factor considered; investment performance against a benchmark and similar funds should be considered as well.

More information must be provided to plan sponsors and participants, with new disclosure regulations set to take effect in 2012. Accordingly, the DOL and participants will be asking plan sponsors whether they know:

  • What they are paying (both over all, and for specific services);
  • What they are receiving for what they are paying; and
  • How what they are paying and receiving compares to what is available in the marketplace for comparable services and performance.

In a DOL audit of your plan, the DOL will ask to see the information reviewed by plan sponsors and documentation of the process used by a plan sponsor to analyze and review the information. 

If you have questions related to fee disclosure and your fiduciary duties in reviewing and engaging vendors for your qualified retirement plans, please contact one of our employee benefit attorneys.

This information provided above about a new development of the law is intended for general informational purposes only. It should not be construed as legal advice or legal opinion on any specific facts or circumstances and you are urged to consult a Lindquist & Vennum LLP attorney or one of your own choosing concerning your situation and specific legal questions you have.

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