Another 401(k) Plan Excessive Fee Dispute Advances

In another advance for participants disputing retirement plan fees, employees of Massachusetts Institute of Technology (MIT) have moved forward in their lawsuit against MIT alleging excessive retirement plan fees. (Tracey v. Mass. Inst. of Tech. , D. Mass., No. 1:16-cv-11620, report and recommendation 8/31/17.) The suit is based primarily on the plan’s inclusion of retail class options (rather than institutional class options) in funds provided by Fidelity, and alleges breaches of ERISA's duties of loyalty and prudence. The MIT participants also claim that Fidelity was paid excessive compensation for its record-keeping services, and that MIT never engaged in a competitive bidding process for those services. Taking the excessive fees claim to greater heights, the plaintiffs further claim that the absence of a competitive bid amounted to a kickback where Fidelity received inflated fees at the expense of the plan’s participants in exchange for making donations to MIT. 

While this litigation is on-going and the outcome uncertain, the wake of excessive fees litigation in recent years serves good reminder to all employee benefit plans sponsors of a few ERISA basics:

• Employers must be able to show that the fees charged by their employee benefit plan vendors are reasonable. The best way to prove the reasonableness of plan fees is through a competitive bid - an RFP.  
• Prohibited transactions (and corresponding taxes and penalties) are no joke. Employers should generally avoid any ancillary engagements or transactions with employee benefit plan vendors. Any time the employer interacts with a plan vendor in a secondary capacity (for example, a charitable donor, trustee or even lender), it raises a red flag relative to the prohibited transaction rules.
• Investment options matter. Employers can incur significant liability for making poor choices, or even allowing someone else - such as a plan vendor or advisor - to make poor choices. This brings us back to the golden rule for ERISA plan sponsors: If you don't know what you're doing, find someone who does.

Want to know the best time to review your employee benefit plan fees and vendor relationships? It's right now.