Congressional Hearings on 401(k) Plan Fees and What They Mean for Plan Fiduciaries

Wow. Don’t think the heat is on for company 401(k) sponsors and other fiduciaries of employee retirement benefit plans who may not have done enough benchmarking and due diligence to make sure that mutual fund and advisor fees are as low as possible? Then take a look at this article out of the Washington Post about congressional hearings into the issue. The gist of the testimony is to the effect that fees are too high, are not disclosed fully or understood by plan participants, and have a significant impact on returns in the plans. While the mutual fund industry disputes this characterization, anecdotal evidence certainly suggests that at least some significant portion of company sponsored plans suffer from these problems. It would certainly be nice if the sponsors of plans investigated right away whether or not their plans suffer from these defects and, if so, promptly remedied the problems. But for reasons I have discussed before in other posts, doing so would not only be good business and the right thing to do for company employees who participate in such plans, but is also necessary to protect the plan’s fiduciaries from legal exposure. It clearly appears at this point that conducting due diligence to root out these problems and then remedy them - or even better, to find out that the particular plan in question does not suffer from these problems and that there is nothing to remedy - is an essential element of satisfying a fiduciary’s obligations in the operation of these plans, and that the failure to do so is an open invitation for a breach of fiduciary duty lawsuit.