5/6/13 5:36 PM – Fiduciary Alert, Is Your 401(k) Providing Lowest Net Cost Share Classes?

If you are a trustee of a 401(k) plan, you need to regularly check to see if your investment options are each in the lowest net cost share class for that fund. You would be very surprised at how many times I find in looking at plans that they are not. Sometimes they are far higher and that can spell trouble for you as a fiduciary, potentially costing you money from your own personal funds.

There have been a couple of cases involving fund costs in which class action suits by participants were dismissed (Hecker v Deere & Loomis v Exelon). The US Supreme Court decided not to review the second.

However, Braden v. WalMart, a suit alleging that the sponsoring company failed to choose the lowest cost fund share, was first denied by a district court but then overturned in 2009 by the 8th Circuit Court of Appeals. It was subsequently settled out of court in 2012. WalMart paid over $13 million. Later that year, Caterpillar settled a similar suit for over $16 million.

If your plan receives revenue sharing payments that are paid to participant accounts, the lowest cost share class may not be the institutional class shares. Surprise!

Consulting with you as a retirement plan sponsor to help you spot and avoid such issues is what I do. Give me a call at 704-698-1040 or email me to take a look at your plan.

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