The Employee Retirement Income Security Act, signed into law by President Ford in 1974, sets standards for private sector pension and retirement plans.
Among the provisions is a stipulation that 401(k) plan fiduciaries can face legal ramifications if they collect excessive plan administration and investment management fees for current or former employees enrolled in the plan.
This kind of litigation has surged in recent years. Since 2020, more than 170 lawsuits have been filed in federal court over extreme ERISA fees. At least 19 of these cases have been settled for more than $68 million.
One such case reached the U.S. Supreme Court last year.
In the case of Hughes v. Northwestern, the Court granted what’s known as “certiorari” (an agreement or writ to review the lower court’s decision).
In the case, current and former employees of Northwestern University (petitioners) sued the University (respondents) alleging, among a variety of claims, that the University violated their duty of care by failing to monitor and record plan fees which resulted in “unreasonably high costs” to participants in the plan.
The justices unanimously agreed with the plaintiffs in an 8-0 vote, stating that “ERISA plan fiduciaries must discharge their duties with the care, skill, prudence and diligence under the circumstances…that a prudent man acting in a like capacity and familiar with such matters would use…”
Defendants in ERISA cases spend billions of dollars each year on advertising, which may be why the media often paints them as innocent victims when they are sued over 401(k) plan mismanagement and excessive fees.
This kind of media spin may be effective in the court of public opinion, but recent decisions, including the U.S. Supreme Court ruling in Hughes v. Northwestern, suggest that it does not help ERISA lawsuit defendants very much in a real court.
Both current and former employees who participate in any type of retirement plan administered by a third party should know that they have rights and a breach of any duty by a plan administrator opens the door to seek legal recourse.