When I talk to 401k sponsors about the costs of being found to have paid more than reasonable fees to their 401k vendors, I don’t spend much time on attorney fees. However, they can sometimes dwarf the actual award for damages.
In Tussey v ABB, a famous case that all plan trustees and fiduciaries should be aware of, the actual damages awarded for the court finding that the plan had funds with internal expenses that were too high (though many trustees might not have considered them to be high or even noticed), the court awarded $13.4 million in damages.
It cost the company another $42 million for their defense lawyers and the plaintiff’s attorney fees were probably similar but the judge knocked them down to a lower figure of “only” 13.5 million. Total cost – nearly $70 million, of which $13.4 million was for damages and about $55 million went to attorneys, though much more was requested.
Lest 401k sponsors chalk that up to being a famous case that went to the U.S. Supreme Court and believing that their own plans being much smaller, are of little interest to the DOL, consider that the average retirement plan civil action damages recovery by the DOL in FY2015 was $161,158. Add to that any penalties and excise tax and attorney fees and the average total was probably well over $200,000.
That doesn’t count lost morale or the management time spent with attorneys rather than with customers and employeees. And, roughly 1.5 times the amount recovered in civil actions by the DOL was recovered in informal cases ($265.3 million vs. $402.9 million).
Bottom line: you must check your fees on a regular basis and don’t just benchmark your investment fees (“But officer, I was only going the speed of the traffic.”).
For investment management fees and underlying fees in plan investments, a more in-depth approach is required. I can help you with that, and I often do that analysis at no charge.
Dave Hoshour, AIF