The concern is that we’ll see more suits of this nature, even though losses in 401(k)s are typically the participant’s liability, not the 401(k) admin’s fault. Financial management firms don’t need the costs of defending multiple lawsuits on top of record-breaking losses from poor investments (sub-prime MBS) and a market correction to all align in 2008.

I think Jeremy puts it well. There are definitely cases where the company is culpable. Just like if you pay someone for a hamburger at McDonald’s and they don’t ever give you one. But I agree that there should be limits. These two cases he mentioned are pretty clear-cut. However, I don’t think it should be sued for things like offering bad funds, etc.

“Commenting on your grouping of 401(k) and low-cost. Have you ever administered a 401(k)? The plan administrators charge fees to the employer and the industry average sales charge for the available funds is around 2%. You say it’s low cost because the internal charges are transparent to you(or hidden deep in a perspectus). In reality, the financial services sector that sells these plans are making fat money doing so and at the same time the plan participants have to sue to get them to follow instructions.”

I didn’t say that the plans are currently low cost. Rather, I’m advocating that the charges (all charges and fees) be transparent so that plan participants can see what they are getting for their money. You’re right, plan administrators can charge whatever they want and most participants will never know the difference.

Commenting on your grouping of 401(k) and low-cost. Have you ever administered a 401(k)? The plan administrators charge fees to the employer and the industry average sales charge for the available funds is around 2%. You say it’s low cost because the internal charges are transparent to you(or hidden deep in a perspectus). In reality, the financial services sector that sells these plans are making fat money doing so and at the same time the plan participants have to sue to get them to follow instructions.

I only hope it works like you think it will. However, I have a feeling that we will have all sorts of lawyers trying to make a case when there isn’t one.

Stu,

LOL! I wish!

Jeremy,

I just worry that this is going to do more harm than good.

This was a very hot topic at our conference last week, and it has a lot of people concerned. Like you mentioned, if there is true misconduct or illegal actions that are taking part on behalf of the plan provider or administrator, those issues certainly need to be addressed. But we all know that in this litigious society we live in, it won’t stop there.

You’re going to see a lot of people who try to sue just because they lost money and it was by no fault of the 401k itself. You’ll see idiots who put 100% of their account in some aggressive equity fund and come crying a year later when they lost 50% of their money. They will claim that the plan provider shouldn’t offer such risky funds, or that they should have been warned before investing in it, or whatever the case may be.

The law needs to be very clear and concise to make sure these lawsuits don’t get out of hand. If a participant calls in to make a fund transfer and the plan provider fails to make this change, you have a case. If a participant calls the call center and a rep tells them that they should specifically invest in XYZ fund because it is sure to go up and the participant does and loses money, again, you have a case.

But as it stands now, it seems like this is just going to open a can of worms and I think it could have some long-lasting effects in the retirement plan industry.