Update: In March of 2015 Ameriprise settled this suit for $27.5 million before the case was to go to trial. Kudos to St. Louis attorney Jerome Schlichter for his work on behalf of these 24,000 current and former plan participants.
A lawsuit brought by a group of current and former employees of financial services firm Ameriprise has been allowed to proceed. The suit alleges that Ameriprise violated their fiduciary obligations as the sponsor of the 401(k) plan it offers to employees. The main issue is that Ameriprise offered a number of its proprietary mutual funds as options in the plan; these funds were allegedly expensive compared to other non-proprietary options that could have been utilized. Further it is alleged that these funds paid revenue sharing and other fees to Ameriprise and several of its subsidiaries.
What does this mean to you as a 401(k) participant?
The implications of this suit are pretty clear. If Ameriprise is found to be guilty of breaching its Fiduciary duty by stocking their 401(k) plan with sub-par, expensive proprietary funds this moves us further along the path of accountability by retirement plan sponsors for the retirement plans offered to their employees in my opinion.
During 2012 your company (generally via its retirement plan provider) provided several disclosures regarding your 401(k) plan. While some of these disclosures were not all that revealing (and others may have been downright cryptic) these disclosures began to “open the curtain” a bit. In anticipation of these disclosures I am aware of several providers who improved their plan offerings as well as activity on the part of a number of plan sponsors who started to look at other platforms and providers for their organization’s 40(k) plan.
The temptation among many employees is to ignore information received about your 401(k). Hard to blame them, much of this information is poorly written and hard to understand. However, you would be wise to review the disclosures received and any future disclosure materials. Do your best to become an informed plan participant. Review the mutual funds (or other investments) offered. Are they typically at least in the top half of their category in terms of investment performance? Are the expenses low relative to other funds in the same fund peer group? Could less expensive share classes of the funds offered that be considered? This last point includes even low cost index funds that may be offered. For example, low cost Vanguard has several share classes that are lower in cost than their basic Investor share class.
I’m not necessarily advocating that you sue your employer for offering lousy investments or for sponsoring a plan that is sub-par, but there is nothing wrong with joining together with other co-workers and presenting your concerns about the plan to your employer. By definition a 401(k) plan and other defined contribution plans put the onus on you to save and invest for your own retirement.
What does this mean to organizations that sponsor 401(k) plans?
To say that companies who offer 401(k) plans, consultants and advisors (like yours truly), and ERISA attorneys are watching this suit with a great deal of interest is an understatement. Essentially this suit could say to employers that if you offer a crappy, high cost 401(k) plan with lousy investment choices it could cost you. And you know what, with the number of lousy 401(k) plans that I’ve seen offered over the course of my career this advisor would have no sympathy for Ameriprise and those involved with their plan should they lose the suit. Offering your own funds and receiving revenue sharing from them to boot, really? What’s OK about that? I wonder how much of their own money senior Ameriprise executives have in these proprietary funds.
My hope is that this suit will help motivate employers who don’t already focus on offering the best 401(k) plan possible to look at ways to improve their plan. I am fortunate to have a group of 401(k) sponsor clients whose main concern is doing the best that they can for their employees. Don’t get me wrong, these companies are concerned with meeting their Fiduciary obligations and managing their Fiduciary liability as a plan sponsor. I view these goals as being very consistent with offering a top-notch plan for their employees. From my experience a sound process to choose and monitor investments based upon an Investment Policy Statement generally results in a better result for the plan participants. Add to this a regular review of the plan providers (record keeper, custodian, etc.) and you have the ingredients of a solidly run plan.
I wonder what Tommy Lee Jones would say to the employees if he was used as a spokesperson to “sell” the 401(k) plan internally?
Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.
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