401k and other retirement plans that pay for either record keeping or advisory guidance as a percentage of assets are getting ripped off. We explain here why employers should purchase these support services as a flat fee or on a per person basis. It’s a great way to save big money on plan expenses. Unfortunately, way too many plans pay the wrong way.
In the rash of recent 401k lawsuits, I haven’t seen any that tackle this specific issue. Up until now.
The employees of Mass Mutual sued their employer over excessive fees in their 401k plan. I suppose management felt like the plan they were providing to their customers was good enough for their employees. The employees didn’t think so. Apparently the employees only like their products for everyone else except them!
They settled for $31 Million. They also agreed to eliminate paying for record keeping as a percentage of assets for four years. Good. Then what? Are they really going to go back to an asset-based method? Would they do something this stupid?
I assume we will see more retirement plan lawsuits based upon asset-based fee models. It’s an obvious and easy target. Employers can and should change how they pay. If their current service providers don’t bill this way, they can find many that do.