401(k) plans have become primary retirement vehicles. Unlike defined benefit plans, where employers recognize investment risks and returns, participants in 401(k) plans rise or fall with investment results. Many 401(k) plans, especially “bundled” arrangements from banks, brokers, and insurance companies, are subject to hidden charges, and perhaps excessive investment fees, that reduce participants’ investment returns. Also, with participants directing their investments, Congress and regulators want participants to get unconflicted investment advice, not just general information. Lawsuits have commenced against plan sponsors and mutual fund companies such as Fidelity, seeking redress for alleged excessive fees, bad investments and hidden costs.

Under President Bush, the DOL issued some rules on fee disclosure and on participant education. Some remain in place and require immediate compliance, others are on hold by the Obama administration. (They’re on hold because they may not do enough for participants.)

Regardless of the status of new rules, the trend is clear: plan sponsors risk lawsuits, and disserve their employees, by failing to ask hard questions of investment and administration providers, by failing to disclose costs and information to participants, and by failing to help participants with investment choices. 

For more information on the rules and recommendations, click here.