Fees in 401(k) plans have fallen by roughly $3 billion in the past decade, and much of the credit goes to ºüÀêÊÓƵ attorney Jerry Schlichter.
His firm, Schlichter Bogard & Denton, has sued about 35 companies and universities on behalf of employees and retirees, alleging that their retirement plans charged excessive fees.
Schlichter’s legal arguments have been upheld at almost every turn, including a Supreme Court ruling. He’s settled 16 cases for a total of $446 million from such employers as Caterpillar, Lockheed Martin and Duke University. Each settlement also required the employer to use lower-cost funds and monitor overhead expenses.
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As of last week, those settlements include the longest-running 401(k) case, filed in 2006 against industrial giant ABB. The company agreed to pay $55 million and had already been ordered to make changes to its plan.
The ABB case was the first 401(k) suit to go to trial. Schlichter says defense lawyers used a “scorched earth†strategy, sparing no expense in hopes of avoiding a precedent-setting ruling.
“I was told by the chief representative of a major insurance company that they had communicated to other insurance companies to never voluntarily pay a penny in settlement,†Schlichter said Monday. “They wanted to shut down this wave of litigation.â€
By the end of the ABB trial in 2010, Schlichter says, defense attorneys’ fees already totaled $42 million. Action since then has included two appeals to the 8th U.S. Circuit Court.
(In ºüÀêÊÓƵ, the case is remembered for another connection. Days after the trial started in Kansas City, one of the named plaintiffs brought weapons into ABB’s plant near Interstate 70 in north ºüÀêÊÓƵ and opened fire, killing three people and wounding five others.)
Unusually, ABB will pay far more in the settlement than the $36.9 million originally ordered by a trial judge. Schlichter explained that during appeals, courts found that ABB paid too much for record keeping and improperly transferred 401(k) assets from one mutual fund to another.
The fund receiving the money was run by Fidelity Investments. A central finding of the case was that Fidelity used its profit on the 401(k) money to subsidize other services it provided to ABB, such as pension and payroll processing. That meant ABB put its interests above those of employees, violating its fiduciary duty.
BrightScope, which rates 401(k) plans, says the average worker’s fell from 0.65 percent in 2009 to 0.51 percent in 2015. With $3 trillion socked away in participant accounts, that fraction of a percentage point means $3 billion in savings.
Some of that is due to wider use of inexpensive index funds and greater public awareness of costs, but Brooks Herman, BrightScope’s vice president of data and research, gives lawyers some credit. “Litigation is part of it, for sure,†he said. “Plan sponsors are very aware of litigation, so they want to be sure they are getting the best offerings in a 401(k) plan.â€
Schlichter, with his longest case behind him, is happy to see fees coming down. “Employers and fiduciaries are taking much more seriously the obligation to work for the sole benefit of their employees and retirees in a way they weren’t before,†he said.
His firm benefits from its victories, of course; attorney fees have consumed between one-sixth and one-third of past settlements. Schlichter notes, though, that the firm must finance considerable costs, and did so for more than 12 years in the ABB case.
Millions of workers can be glad he took up that fight.