Has your company’s 401k plan charged you fees and expenses on your retirement savings that are excessive?
Allowing employee retirement savings accounts to be overcharged for various types of fees and expenses is a common form of mismanagement. If your plan has failed to insure that only reasonable amounts were charged against your retirement savings, you may be able to take legal action against your employer or whatever entity is acting as your plan’s sponsor in order to recover such overcharged amounts that have improperly diminished your account value.
The process of taking legal action begins with speaking to a 401k mismanagement attorney. An attorney can help you understand your legal options and what’s possible if you decide to move forward with a case.
Before you begin the process of working with a lawyer, it may help you to understand mismanagement. The information below will help you understand what 401k mismanagement is, what actions may constitute mismanagement, and what you can recover.
What is 401k Mismanagement?
401k mismanagement occurs when funds provided for investment are mishandled. Employers who sponsor 410k plans as a benefit for their employees may be held responsible when they fail to act in the best interests of plan participants and breach their fiduciary duty to ensure that plan participants are not charged unreasonably high administrative and/or investment expenses. Such expenses may include fees for recordkeeping, investment consulting and even the direct or indirect (hidden) fees associated with the investment options themselves.
While some fees are charged directly to your account in the form of a fee or deduction appearing on the statements you receive, indirect fees are unlikely to show up on your statement. Instead, these fees are deducted directly from your investment returns. This is why indirect fees are sometimes referred to as “hidden” fees.
Sponsors may also breach their fiduciary duty by failing to protect against mismanagement and overcharging by the brokers who are handling the funds.
One of the essential laws involved in these cases is The Employee Retirement Income Security Act of 1974 (ERISA). This law placed minimum standards on the responsibilities of those who manage and control fund assets held on behalf of employee retirement plans.
ERISA allows both civil and criminal enforcement of its provisions. Employees who have had their rights violated may be able to sue individually or, more commonly, as part of a more extensive class action. Those responsible for violating the provisions of the law may face federal prison time in addition to fines and civil judgments.
Examples of 401k Mismanagement
ERISA law broadly defines acts that may be considered violations. Certain acts, such as embezzlement and theft, can carry lengthy prison sentences, but even losses that result from negligence may result in criminal charges and civil actions.
All of the following situations are examples of behavior that may be considered actionable mismanagement.
- Your Employer/Investment Company Fails to Monitor Your 401k
- Your Employer/Investment Company Allows your Account to be Depleted by Fees
- Your Employer/Investment Company Pledges to Absorb Expenses but Fails to Do So
- Your Employer/Investment Company Engages in Self-Dealing
Your Employer/Investment Company Fails to Monitor Your 401k
The details of retirement funds may change over time. The fund managers may increase the service fees, lower the interest rates, or make other changes that can affect the contributors’ returns.
Employers are responsible for monitoring the changes that are made to their employee’s investment funds. When these changes result in worse performance for the plan, the employers are expected to remove them. Failing to do so may constitute mismanagement.
Your Employer/Investment Company Allows your Account to be Depleted by Fees
Many funds have varying fee structures, but funds with high fees typically do not perform better than funds with low fees. When the costs of fees are counted against the returns, funds with high fees may even perform worse than others with lower fees.
Therefore, there is an expectation that employers will avoid plans that have high fees. If your employer chooses a plan with high fees that allows your funds to be depleted, then you may be able to hold them accountable for losses due to mismanagement.
Plan fiduciaries should use the substantial leverage they have due to the large amounts being invested to obtain the lowest cost investment options being offered. They should also use their large size to negotiate the lowest possible administrative fees from the recordkeeper. Small differences in the fees charged to thousands of employees can add up to very large amounts over time.
Your Employer/Investment Company Pledges to Absorb Expenses but Fails to Do So
Your employer is not required to provide contributions or to cover all of your plan expenses. However, if they pledge to do so as part of a contract or as a company policy, they must fulfill their obligations.
It may be considered mismanagement if they refuse to meet their obligations or restore funds that you paid to cover their unmet obligations. If you file a legal action, you may be able to recover funds you’ve lost to expenses that should have been covered.
Your Employer/Investment Company Engages in Self-Dealing
Self-dealing is a type of mismanagement that may occur when your employers or the plan administrators make decisions that benefit themselves instead of the plan’s contributors.
This type of mismanagement may occur because some funds offer fees, bonuses, and other types of kickbacks to sponsors who choose the plans. Your employer may also manage their own funds and choose to benefit those funds rather than the contributors.
What is Possible with 401k Mismanagement Cases?
Companies that have neglected to properly manage their employee’s retirement funds properly may be sued. Employees may be able to recover the money that they have lost to fraud, lost investment growth, and additional punitive fees.
However, the total amount recovered may depend on the settlement. Many of these cases, particularly the ones that involve class actions, end in multi-million dollar settlements. The total amount may be divided among you and the class action members and allocated based upon your personal share of the losses.
Do you Need a 401k Mismanagement Attorney?
You may need a 401k mismanagement attorney if you have lost retirement funds due to your employer’s mismanagement. A 401k mismanagement attorney can help you figure out if the behavior that you’ve identified is actionable and what you may be able to recover if you move forward.
You should schedule a consultation as soon as you learn that mismanagement may have occurred. Time limits may apply to reporting certain acts.