New Twist on Retirement Plan Litigation

We have seen excessive fee litigation in retirement plans for years, but now it appears plaintiffs are becoming a bit smarter. They are now suing over the lowest “Net Expense Ratio” and no longer simply the lowest gross expense ratio.

Denso International was sued over excessive administrative fees and by offering funds in needlessly expensive share classes.

The lawsuit claims that “had defendants engaged in an objectively reasonable search for, and selection of, the share class investments with the lowest net expense ratio, the Plan would have selected the alternative funds in the chart above.” It goes on to say, “defendants knew, or should have known, about the existence of share class investments with the lowest net expense ratios and should have performed an analysis to determine the share class investments with the lowest net expense ratios.”

For participants to benefit from the “Net Expense Ratio” the plan must be set up for revenue equalization with the recordkeeper so that any revenue sharing goes back to the participant from which it came from.

It is critical that plan sponsors and/or their advisors conduct an extensive share class review, we have been doing these at least annually for our clients, and one more reason why plan sponsors need to understand how retirement plan fees are paid.