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Justices make it easier to sue over 401(k) retirement plans
Old 05-18-2015, 03:15 PM   #1
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Justices make it easier to sue over 401(k) retirement plans

http://finance.yahoo.com/news/justic...150512015.html

People in charge of investment options have an ongoing responsibility to monitor the situation, Breyer said. "The continuing duty to review investments includes a duty to remove imprudent investments," Breyer said.
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Old 05-18-2015, 03:35 PM   #2
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Like most unanimous SC decisions, I concur.
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Old 05-18-2015, 03:52 PM   #3
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I was amazed to learn that until recently, employees did not have the right to even know what their 401(k) fees were.

Fee Disclosure: What 401(k) Plans Can No Longer Hide
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Old 05-18-2015, 04:11 PM   #4
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I wonder if this ruling could have unintended adverse impact. In this case, employees sued because some of the options in their 401K were not great (not because they were >all<< bad). Companies want to avoid a chance of being sued, so they may offload the responsibility for choosing the available fund options to another company, and have all participants pay a fee for that. .5% to 1% is often considered a reasonable fee for FAs, and maybe the employees will get some other services in the bargain.
The company "wins" by offloading their liability for zero cost. The losers will be the employees who know they want low-cost funds, but are forced to pay the fee.
The bigger problem, IMO, is when an employer doesn't offer any low-cost options. If they make typical low-cost funds from VGD, FIDO, etc, available then I don't know if they should be dinged if people choose something more expensive.
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Old 05-18-2015, 05:18 PM   #5
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My biggest concern is that at some point companies say why take on these risks and just get rid of the plans. Executives always have other ways to save. The remaining employees can just be told - too bad too sad. Companies are not required to offer pensions or 401ks. I can't really blame employers if they start having to defend suits because a few employees believe some of the options are too expensive even though a suite of very low cost index funds is also offered.
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Old 05-18-2015, 05:32 PM   #6
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My biggest concern is that at some point companies say why take on these risks and just get rid of the plans. Executives always have other ways to save. The remaining employees can just be told - too bad too sad. Companies are not required to offer pensions or 401ks. I can't really blame employers if they start having to defend suits because a few employees believe some of the options are too expensive even though a suite of very low cost index funds is also offered.
That is exactly what is already happening. I work for a large fortune 500 company based in Delaware with a French name. lol. The pension was discontinued in 2008 with the 401K. originally we had a great plan, in fact it was named number 3 in the country. matched dollar for dollar for the first 6% and then threw in an extra 3% just for participating. Very small number of choices.
Folks complained, ok company expanded the choices which they claimed would cost more money to manage. so they got rid of the 3% extra bonus supposedly to cover the extra cost.

ok so still 6% dollar for dollar match.

Rumor around the company (and as of today it's just a rumor) has it that after they split with a couple of their sections they will discontinue the 401K because of complaints from some of the manufacturing unions.

My company continuously reminds us that the 401K is NOT a god given right that it is a benefit.
Now while I do agree with the ruling, companies basically are going to take the cheapest option.
if they start to fear that they will be sued every time an employee doesn't like the plan, they will end it.
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Old 05-18-2015, 06:30 PM   #7
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My biggest concern is that at some point companies say why take on these risks and just get rid of the plans. .........
Why not just increase the limit on IRA contributions to 401(k) levels and call it a day? It seems inherently unfair that some can stash away much higher levels than others, solely based on where you work.
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Old 05-18-2015, 09:45 PM   #8
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401ks will simply start disappearing if lawsuits become a perceived risk.


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Old 05-18-2015, 09:55 PM   #9
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401ks will simply start disappearing if lawsuits become a perceived risk.
I wonder if some sort of clearinghouse or approval authority will step in to "bless" options for 401K plans.

With regard to the court case, the SEC apparently felt that the funds (and the expense ratio/costs) were appropriate for the general public. I guess that standard wasn't a sufficient defense.
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Old 05-18-2015, 10:21 PM   #10
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401ks will simply start disappearing if lawsuits become a perceived risk.


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Not likely. Rather, companies will simply disclose the fees upfront. If the employees still choose those funds, no likely breach of fiduciary duty.


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Old 05-18-2015, 10:25 PM   #11
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I wonder if this ruling could have unintended adverse impact. In this case, employees sued because some of the options in their 401K were not great (not because they were >all<< bad). Companies want to avoid a chance of being sued, so they may offload the responsibility for choosing the available fund options to another company, and have all participants pay a fee for that. .5% to 1% is often considered a reasonable fee for FAs, and maybe the employees will get some other services in the bargain.
The company "wins" by offloading their liability for zero cost. The losers will be the employees who know they want low-cost funds, but are forced to pay the fee.
The bigger problem, IMO, is when an employer doesn't offer any low-cost options. If they make typical low-cost funds from VGD, FIDO, etc, available then I don't know if they should be dinged if people choose something more expensive.

I moved the plan at my old company to FIDO.... the owner of the company wanted to offload the liability.... FIDO said there is no way you can do it... IOW, the laws do not allow it to happen... the plan is connected to the company and the company has the liability...

Now, FIDO said they would keep track of all laws, regulations, court decisions etc. etc. and inform us if there was something that should be done... they also sent all reminders etc. about the forms that needed to be filed and you could pay a fee for them to do that for you...
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Old 05-18-2015, 10:26 PM   #12
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401ks will simply start disappearing if lawsuits become a perceived risk.


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You forget - the execs want 401ks - and want participation in them - so that THEY can get the benefit as well. That's the whole reason safe harbor rules about participation had to be put in place - or else ONLY execs would participate at many companies.

Edited to add: Some 401k plans are really awful. I posted about my husbands former plan.
WWYD- Husbands craptastic 401k plan
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Old 05-19-2015, 12:41 AM   #13
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Why not just increase the limit on IRA contributions to 401(k) levels and call it a day? It seems inherently unfair that some can stash away much higher levels than others, solely based on where you work.
I so agree with you. Another option would be for them to open up the TSP (Federal employee's 457 plan) to everyone.
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Old 05-19-2015, 07:29 AM   #14
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Why not just increase the limit on IRA contributions to 401(k) levels and call it a day? It seems inherently unfair that some can stash away much higher levels than others, solely based on where you work.
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I so agree with you. Another option would be for them to open up the TSP (Federal employee's 457 plan) to everyone.
+1 to both. Let individuals pick the funds they want and invest pre-tax dollars to the 401K level. Allow and encourage employers to match with pre-tax contributions to these plans up to the 401k limits.
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Old 05-19-2015, 07:37 AM   #15
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Old 05-19-2015, 09:25 AM   #16
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I didn't understand this case the same way everyone else did. It looked to me that it was about making choice that unnecessarily added fees such as the higher cost option of the same investment at the same financial family.
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Old 05-19-2015, 09:43 AM   #17
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I didn't understand this case the same way everyone else did. It looked to me that it was about making choice that unnecessarily added fees such as the higher cost option of the same investment at the same financial family.
The company (Edison) apparently offered a share class of a mutual fund that had a higher fee than another product offered by the same company. (This happens all the time with brokers, etc.) Both types were offered to the public. The participants in the 401K can (now) see the costs of all the investment options, and could steer clear of the higher price ones if they want. Edison is being sued over the high costs of that fund choice.
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Old 05-19-2015, 01:30 PM   #18
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You forget - the execs want 401ks - and want participation in them - so that THEY can get the benefit as well. That's the whole reason safe harbor rules about participation had to be put in place - or else ONLY execs would participate at many companies.

Edited to add: Some 401k plans are really awful. I posted about my husbands former plan.
WWYD- Husbands craptastic 401k plan
For very large companies there are ways to defer income that do not involve any of the tax advantage accounts and executives can put much more money aside than they can in a 401(k).... sure, there are not as many protections etc. to them, but do you think that the execs are going to leave their money at risk if they can hedge And from what I heard there were people putting over $1 mill per year in these accounts... so 401(k) is chump change....
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Old 05-24-2015, 03:38 PM   #19
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Fidelity just settled with employees on the same issue - we got our check last week! But we all know the attorneys got as much as we did.

Nice check!
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