401K Small Business Lawsuit

By Mark Folgmann

“A Crack in the Wall”
Is this the start of Small 401(k) Lawsuits?

We have been talking with small business owners for the last two years about the potential lawsuits that may be lingering over the horizon. A small business 401(k) is not an investment product but rather a delicate income generating machine that will fund our eventual retirement years. Since this is classified as a “real” retirement plan there is a fiduciary requirement that must be met by the people in charge of the plan. Here is where the problem begins, the plan fiduciaries are not taking their responsibilities serious and therefore run the risk of lawsuits by their employees. Until last month the only companies involved in litigation over fees, conflicts of interest or lack of disclosure were large Fortune 500 companies and most thought the small employer ran very little risk. We have now learned that the first small 401(k) with less than 30 employees in Kansas has filed a lawsuit on a plan with under $2 million in assets. This Wichita-based Orthopedic and Sports Medicine office has filed litigation against their advisor, the record keeper and the custodian of the plan claiming that the trio of plan providers caused participants to pay “secret” and “excessive” fees.

Unfortunately this appears to be the one and only way to get employers to pay attention to their plans. We still have the opportunity to save the existing 401(k) but it will take our undivided attention. The excess fees and lack of disclosure are costing Americans between 30% and 50% of their cash flow in retirement. Matt Hutcheson who is the nations best know Independent Fiduciary estimates that the average retiree would increase their eventual income by over $500 per month in retirement if they had a competent Investment Fiduciary overseeing their 401(k). This means the typical employee will have to work an extra 6yrs to make up the high cost of fees within the plan If some of these changes would have happened 25 years ago we would not have anywhere near the amount of senior going back to work and taking service jobs from our young people. This means the typical employee will have to work an extra 6yrs to make up the high cost of fees within the plan If some of these changes would have happened 25 years ago we would not have anywhere near the amount of senior going back to work and taking service jobs from our young people.