ERISA Laws Help You Protect Your Money

Boston, MAIf you were counting on your 401(k) to help you out during these tough economic times, you might have to think again. Workers across the US are discovering that their 401(k)s have diminished greatly in value—with no explanation as to why. Luckily, ERISA laws can help you to protect your money, but you may have to file an ERISA lawsuit to recover your losses. ERISA claims generally involve allegations of breach of fiduciary duty on the part of those tasked with overseeing the 401(k) plans.

According to Human Resource Executive Online, more than a dozen high-profile lawsuits have been filed recently against large corporations, alleging plan participants where charged excessive fees for their mutual funds—which cost the investors a lot of money. One such lawsuit was filed against Wal-mart Stores, Inc., alleging that $60 million in excessive fees was paid for a $9.89 billion 401(k) plan. The suit was dismissed last year, but is currently in an appeals court.

Plaintiffs reportedly claim they were offered mutual funds with "retail class shares," which generally involve higher fees than "institutional shares." Furthermore, plaintiffs allege those fees were not disclosed to plan participants and the funds under-performed.

A major problem with plans like the 401(k) is that they can be quite complex, making it difficult for plan participants to fully understand the fees. Of course, it is only when money is tight, or plans are failing, that many plan participants question how the plan is run—but by then, they may have lost a lot of money.

Congress is reportedly taking steps to help out the average 401(k) plan participant. Hearings have begun on H.R. 1984, the 401(k) Fair Disclosure for Retirement Security Act of 2009, a bill that would require employees be given a simple explanation of the fees a 401(k) plan is charging. Currently, there is no law requiring that all fees workers pay for their 401(k) be disclosed.

The bill would also require that all fees charged against an account are included in the account holder's quarterly statement, plan administrators offer at least 1 low-cost index fund to plan participants and have the fees as disclosed broken up into 4 categories—administrative fees, investment management fees, transaction fees and other fees.

However, what the bill does not do is set out limits for fees. So, people may be given a summary of their fees, but there is still no guarantee the fees will not be excessive. And, excessive fees can make a huge difference to the value of a plan.

According to the Government Accountability Office, even a 1 percentage point difference in fees can result in a 20 percent reduction in retirement benefits. Furthermore, according to a press release from George Miller, chairman of the House Education and Labor Committee, and Rob Andrews, chairman of the Health, Employment, Labor, and Pensions Subcommittee, an AARP survey found that approximately 80 percent of plan participants do not know how much in fees were taken from their 401(k)s.

While the bill may help people understand the fees they are charged, and possibly help them to make more informed decisions about their 401(k)s, it does not help those who have already lost money due to the mismanagement of their 401(k) plans. Those people may still have to turn to the courts to recover their lost money.