The 401(k) industry lags behind the growth of cheaper mutual funds and ETF options offered by other online retirement advisors. The tide is turning in the employees’ favor. Several lawsuits have already demonstrated that employees will pressure companies to offer better investment options instead of the previous scant alternatives with only a limited number of mutual funds with high fees.
“These lawsuits are about high 401(k) fees and conflicts of interest,” said Grant Easterbrook, co-founder of Dream Forward Financial, a new low-cost 401(k) plan based in New York. “Employees are demanding plan sponsors or businesses to abide by their fiduciary duty to do what is in the employee's best interest.”
Even the Supreme Court is weighing in and later this year is likely to vote in favor of the employees at Edison International, a Rosemead, Calif. public utility company. The outcome of the case, Tibble v. Edison International, would likely set a precedent for additional lawsuits in the future.
“The Supreme Court decision will cause awareness of the legal liability that is expensive 401(k)s to skyrocket and potentially increase the number of lawsuits over 401(k)s,” he said. “It will push the issue up the corporate ‘to-do list.’”
Other lawsuits have settled in the favor of the employees. Even financial services companies are not immune to this growing issue. Ameriprise Financial, the Minneapolis-based financial services company agreed to pay $27.5 million while Lockheed Martin, the Bethesda, Md.-based defense firm paid $62 million. The other lawsuits which have been settled, include Nationwide, the Columbus, Ohio insurance company; Fidelity, the largest 401(k) plan administrator in the nation and based in Boston; ING, the Amsterdam-based bank; and International Paper, the Memphis pulp and paper products company.