Here's why so many workers are suing employers over 401(k) plans

Here's why so many workers are suing employers over 401(k) plans

Russ Wiles | Arizona Republic |  

You would think most investors are fairly happy with their results, 10 years into a rising stock market and with solid gains delivered by bonds, too. But that apparently isn't the case at a lot of 401(k) workplace retirement plans.

Unhappiness over high fees, inappropriate investment options and other issues have led to a spike in lawsuits in recent years, according to a study by the Center for Retirement Research at Boston College. The flip side is that many 401(k) programs have gotten better in recent years, partly because of increased litigation risk.

These trends affect nearly two in three adult workers with money invested in 401(k)-style plans, which have replaced traditional pensions as retirement mainstays in the workplace. The plans feature tax-saving benefits and allow workers to contribute money automatically from each paycheck. Many employers offer matching funds to encourage further saving.

But unlike traditional pension plans, where managers hired by employers call the shots, workers in 401(k) plans must make investment decisions on their own (although some companies provide guidance). Poor investment choices, high fees, a lack of transparency and other problems can lead to subpar results and dissatisfaction.

Backlog of cases -- 60% pending

Not surprisingly, 401(k) lawsuits, which are typically class-action cases, jumped when the economy soured and the stock market tanked roughly a decade ago.

From eight lawsuits filed against employers in 2006, the numbers surged to 18 in 2007 and 107 in 2008,  before declining for the next five years, according to the Boston College report authored by George Mellman and Geoffrey Sanzenbacher.

But since bottoming at just two lawsuits in 2013, litigation has risen again, with 56 suits in 2016 and 51 in 2017, the two most recent years tracked.

Of the roughly 430 cases evaluated by the Boston College, 60% are still pending, 20% were dismissed/closed, 16% were settled/decided, and 4% are on appeal. In an interview, Sanzenbacher said he sensed the trend of increased 401(k) litigation is continuing, though the researchers haven't included more recent numbers.

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