More Mutual Fund ERISA Lawsuits Filed

Seattle, WAMore and more employees, tired of paying excessive fees for their mutual funds, are filing ERISA lawsuits against their employers. They allege their employers are breaching their fiduciary duties by offering 401(k) plans that have unreasonably high fees.

One company facing such a lawsuit is Northrop Grumman. The lawsuit names the company's management, 401(k) investment committee and board of directors as defendants. Plaintiffs, current and former employees, allege that the company's 401(k) plan charged excessive fees. Additionally, they argue that they were offered inappropriate investment choices.

Other companies, including Boeing, face similar lawsuits. Part of the problem with many mutual funds is that employees pay high fees for the investments but often do not realize how high the costs are. In many cases, the costs associated with some mutual funds can be kept hidden from employees but those costs can add up over the life of an investment.

The employee lawsuit against Boeing alleges that members of the Boeing Employee Benefits Investment Committee and the company's director of benefits breached their fiduciary duties by improperly offering funds that were more expensive than other funds and did not perform as well as those lower-cost funds. Included in the allegations is that the plan's size, around $25 billion, should have been used by investment managers to set up less expensive accounts, rather than being put in higher-fee mutual funds.

Meanwhile, an employee lawsuit against ABB, a manufacturer, has been certified as class action. The suit, which represents 12,000 employees who participated in the company's 401(k) plan, alleges the company breached its fiduciary duty. Plaintiffs claim that ABB and Fidelity Management Trust Company hid excessive plan fees through a revenue sharing program. They further allege that employees were not properly informed of the revenue sharing agreement.

Fiduciaries have an obligation to act in the best interests of plan participants. Doing so means offering mutual funds and investment options with reasonable fees, even if the employer could make more money off funds that have high fees. A fiduciary must put the needs of the investor ahead of the needs of the company.

Unfortunately, many companies are breaching their fiduciary duties by offering plans with excessive fees and by putting their own benefits ahead of the needs of their employees.

Companies are now finding they have to pay in situations where they inappropriately manage employee pensions. Recently, a judge approved a $14 million settlement between New York Life and company employees. The plaintiffs alleged that New York Life inappropriately by investing pension assets exclusively in its own mutual funds. The suit further alleged that the high fees associated with the investments drained millions of dollars from the funds.