By: Lynn A. Toops, Attorney
Do you know whether your 401(k) plan administrator is making decisions in the best interests of your financial well-being? One group of Indiana employees has asked that question and now is taking action to protect themselves.
In December 2015, some Indiana residents with 401(k)s alleged in a class action lawsuit that Anthem breached the fiduciary duty owed to 401(k) plan participants by allowing the charging of unreasonable fees to 401(k) accounts. The Anthem plaintiffs contend that, even though cost-effective options exist, Anthem selected high-cost and badly-performing investments.
And based on recent case law from the United States Supreme Court, it appears that the Anthem plaintiffs may have support for their claims.
Groundbreaking Precedent
In Glenn Tibble, et al. v. Edison International , the Supreme Court of the United States determined that under the Employee Retirement Income Security Act (ERISA), 401(k) participants may have a breach of fiduciary duty claim against plan providers that choose poorly-performing, high-fee investments in lieu of cheaper alternatives.
The Tibble plaintiffs argued that their 401(k) plan provider, Edison International, violated its fiduciary duty by offering higher priced retail-class funds as 401(k) plan investments, even though identical cheaper institutional-class funds existed. The Supreme Court held that these claims could possibly constitute a breach of fiduciary duty claim.
ERISA imposes fiduciary requirements on 401(k) plan administrators, like Edison International and Anthem, and that might require them to choose cost-effective funds with lower fees.
Choosing the Right Investment Funds
Institutional-class funds are one of the most cost-effective ways for institutional clients to invest because those plans charge less fees. On the other hand, smaller-scale retail-class funds are more expensive. 401(k) providers that offer retail-class funds when institutional-class funds are available may cause your hard-earned bucks to go to unnecessary fees instead of being saved for your future retirement.
These new cases remind 401(k) participants to review their accounts in great detail to avoid a scam. If your 401(k) plan charges unnecessary fees and selects retail-class funds instead of institutional-class funds, it may be time to take action to ensure your own financial well-being and to take back what is rightfully yours.