Workers in Washington, D.C., and throughout the country filed 107 401k lawsuits in 2016 and 2017. That was the highest since 2008 and 2009 when 169 such suits were filed. Excessive fees, self-dealing, and poor investment choices are the three main reasons why a 401k lawsuit could be filed. In some cases, a lawsuit is the result of relatively vague guidance given to fiduciaries.
Individuals are asked to make investment choices in an effort to avoid large losses. However, when an investment fails to keep pace with others in its class, it could lead to a lawsuit. Self-dealing occurs when a fiduciary chooses a fund that he or she may run or otherwise have a stake in. When a fiduciary chooses an investment that has low returns or high fees, that ultimately goes against the investor’s interest, which could be a violation of Employee Retirement Income Security Act law.
To reduce the risk of a lawsuit, many 401k plans put their money into passive index funds. These funds usually offer the lowest rates and tend to have returns at or near the benchmark. Fiduciaries have also asked for more information from plan providers, which has led to lower investment fees. In 2016, mutual fund fees for 401ks as a percentage of assets was .48 percent.
If a 401k plan fiduciary is not acting in an investor’s best interest, that could go against federal law. While a fiduciary is not required to accurately predict the future return on a given investment, he or she is required to take prudent action to protect a person’s investment capital. Those who believe that a fiduciary is not acting in an appropriate manner may wish to take legal action with the assistance of an attorney.