A recent lawsuit highlights the fiduciary duty employers have when dealing with retirement accounts in Connecticut.
Many people working in Connecticut have the ability to enter into an employer-sponsored retirement account, such as a 401(k). Nonprofits and public school employees are often offered something similar, known as a 403(b).
In either case, there is generally an assumption that the sponsors of the plans do their due diligence in monitoring the fees necessary to administer them and the investments that are available through them. A recent lawsuit demonstrates what can happen when the employer shirks that responsibility.
According to a report in The New York Times, three universities, including Yale University in Connecticut, are on the receiving end of a lawsuit based on the retirement accounts that are offered to employees. The claim states that the schools did not complete their fiduciary duty to use more affordable investments as opposed to expensive and poorly performing ones. Through using their collective power, the lawsuit claims, the universities could have negotiated a better price on investment funds.
Further, the claimants argue that they had to pay excessive fees on their accounts. The plaintiffs state that had the universities taken the appropriate steps, the people participating in these plans could have saved tens of millions of dollars in total.
Why high fees are problematic
The U.S. Department of Labor issued a report in 2013 that examined the fees associated with 401(k) retirement accounts. There are plan administration fees, investment fees and the possibility of individual fees for certain other services. Employers can negotiate with and hire different providers, based on the fees assessed and the impact it would have on employees.
Consider two employees working with 35-year careers and a retirement account. One pays 0.5 percent in fees, one pays 1.5 percent. The DOL report notes that the one percentage point difference could equate to 28 percent less in the account paying the higher fee.
Spot the problem
Many companies make the retirement account process nearly seamless, as people who opt-in can choose default investments. However, prudent employees who want to ensure their money is handled responsibly should ask about the following:
- Any fees assessed and the investment opportunities available
- Who pays for administrative fees
- The capability to track investments
Under the law, all fees charged to retirement accounts must be considered reasonable. This does leave providers some discretion in what they charge, as there is no set limit. Employees have the right to pursue litigation when it appears that employers have not lived up to their fiduciary duty. Anyone who has questions about this issue should speak with an employment attorney in Connecticut.