It Just Got Easier to Sue Over 401(k) Plans

It Just Got Easier to Sue Over 401(k) Plans

Individuals who have retirement investments in a company 401(k) plan may now have more success filing a suit against the company for infractions such as breach of fiduciary duty.

Recently, the United States Supreme Court unanimously ruled in favor of participants in employee retirement plans, in which the participants object to the companies’ investment decisions that negatively affect their retirement portfolios.

Mutual funds with excessive fees

In the case — Tibble v. Edison International, 13-550 — current and former employees of the energy company Edison International argued that the company did not act in their best interests by choosing mutual funds with higher fees than others available to them.

More specifically, the Edison employees contend that of the roughly 40 mutual funds available in the 401(k) plan, the company put the investors in a few higher-cost funds open to the general public instead of identical investments with lower costs that are open only to institutional investors.

Higher fees decrease investor earnings

Think a small fee hike is negligible? A 2014 study by the Center of American Progress found that higher fees of just 1 percent a year would erase $70,000 from an average worker’s account over a four-decade career.

Potential breach of fiduciary duty

A federal appeals court had earlier dismissed the Edison employees’ claims. The court said the employees’ lawsuit was filed too late to contest the original choice of funds and that executives who make these decisions only have to reconsider them if circumstances change dramatically.

But the Supreme Court disagreed with the appellate decision. The court said that people in charge of investment options have an ongoing responsibility to review investments and remove imprudent investments.

$4.5 trillion in 401(k) accounts

The Supreme Court’s decision to consider the Edison case comes amid increased scrutiny of how Americans’ retirement investments are managed. The Investment Company Institute claims that 53 million people hold about $4.5 trillion in 401(k) accounts. Also, 401(k) accounts have increasingly taken precedent over traditional pension plans.

The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.

Source: The Indiana Lawyer.com