On March 19, 2014, the Eight Circuit Court of Appeals in St. Louis affirmed a lower court ruling in one of the first 401(k) fee cases to go to trial. In that case, the Court found ABB Inc., a power and automation technology company, failed to monitor its plan’s internal costs and paid excessive fees by not negotiating for rebates from investment companies whose funds were offered in the plan. This, the court said, violated ABB’s fiduciary duties to the 401(k) participants. The lower court awarded $13.4 million to the 401(k) participants in that part of the case.
These suits have become more common with settlements in private actions against General Dynamics, International Paper and Caterpillar generating $125 million in recoveries for approximately 300,000 participants. The Department of Labor also brought actions against Sunkist and the National Rural Electric Cooperative Association, which recovered almost $29 million for plan participants.
Recently, the Supreme Court signaled its interest in a case filed against Edison International, a California utility. Edison placed plan participants in high cost retail mutual funds when cheaper institutional choices were available. The Supreme Court asked the United States solicitor general to state the government view on the issues in the case.
Each case is different but most involve high and often hidden fees for plan participants. Fiduciaries should annually review fee levels to plan participants in relation to established industry benchmarks.
Carl Kampel, a certified public accountant, is the director in charge of professional standards at Ellin & Tucker, an accounting and business consulting firm with offices in Baltimore, Frederick and Belcamp, Maryland and Washington, D.C. He is a member of the FASB Emerging Issues Task Force and past vice chair of the AICPA Financial Reporting Executive Committee. He is also a member of the Board of Directors of the Baltimore Chapter of Financial Executives International and the Maryland Association of CPAs.