Excessive Fees in 401(k) Plan

Many expect to retire at 62, but only a few start saving early. A survey revealed that 50% of adults between 18 and 34 are not saving for retirement at all despite experts’ recommendations to save as early as possible.

However, the employment-sponsored 401(k) plan has made it easier for people to start their retirement planning. 

Many people have these through work as they are automatically enrolled by their employer, meaning they might not even realize they’ve been saving part of their paycheck for later.

A 401(k) retirement plan typically comes with a series of advisors that help you manage the account. These professionals must ensure you are not paying excessive fees for any service received.

What Is Retirement Planning?

Retirement planning includes identifying the kind of life you would like to live during retirement, the required income, and what is needed to achieve the income goals. It also involves managing assets and risks.

The Employee Retirement Income Security Act (ERISA) safeguards your plan’s assets by requiring persons or entities who control it to be bound by fiduciary responsibilities.

Who Are the Fiduciaries of a Plan?

Three main types of 401(k) fiduciary advisors manage a retirement plan account. Each category of the fiduciary that manages a 401(k) plan is named after the section of the ERISA statute that defines them. ERISA is a law that governs most elements of the 401(k) and IRA system.

The 3(16) typically handle administrative matters, 3(21) fiduciaries oversea portfolio transactions, while 3(21) fiduciaries research and determine strategies for your portfolio and recommend the most fitted assets.

The basic responsibilities of a fiduciary, as listed by the IRS, include:

  • Acting solely in the interest of the participants and their beneficiaries;
  • Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
  • Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with the matters;
  • Following the plan documents; and
  • Diversifying plan investments.

How Much Should You Save for Retirement?

There is no definite approximation for the amount you should save for retirement. However, your annual income, family plan, health status, and the age you intend to retire will significantly influence how much you need to save for retirement.

Some retirement experts recommend saving about $1 million. Others recommend the 4% rule, which suggests dividing your ideal retirement income by 4%.

For example, if you plan to spend $100,000 annually during retirement, you will need to save at least $2,500,000 ($100,000 / 0.04). 

Some suggestions recommend saving an amount equivalent to 12 years of one’s pre-retirement annual income. There is also the 10-20% guideline that advises you to save 10-20% of your gross income monthly until retirement.

How Can I Sue for Excessive Fees?

We all want a secure and fun retirement, but this is only possible with enough money. Excess fees can cripple your retirement plan. 

Plan advisors are required to act solely in the interest of plan participants and their beneficiaries. 

Some of the reasons to sue your advisor include:

  • Offering too many investment options or an investment menu which is too complex
  • Failure to monitor investment performance
  • Failure to leverage less expensive mutual fund share classes
  • Failure to replace or alter underperforming investment options
  • Offer investment options with a limited performance history
  • Paying excessive fees to service providers (e.g. recordkeeper, investment manager)
  • Failure to use plan “purchasing power” to control costs by employing multiple recordkeepers
  • High fund expense ratios
  • Failure to monitor the fees paid to service providers
  • Not implementing revenue-sharing caps
  • Creating imprudent expense by negotiating fees based upon a percentage of assets as opposed to a fixed/flat rate
  • Failure to monitor or supervise the discretionary fiduciary, trustee
  • Failure to consider Collective Investment Trusts or separate accounts

Contact S.A. Law Group Today

The Employee Retirement Income Security Act (ERISA) outlines several responsibilities of fiduciary plan advisors. You could recover compensation if your advisor failed to monitor your assets and paid excessive fees to service providers like recordkeepers. Contact our office today so we can analyze your case and help you get the compensation you deserve. 

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