Are you aware of your rights as a 401(k) participant? Did you know that recently the Supreme Court ruled in favor of employees in a case that involved choices available in 401(k) plans? Well, the Supreme Court did rule that a company does have an ongoing concern when it comes to 401(k) investment options. What this means is that if you participate in a 401(k) plan your employer has an on-going responsibility to manage the fund in the best interest of its employees.
The case before the Supreme Court centered on Edison International and its choice of some mutual funds that employees considered having excessive fees. What this means is the fees on the mutual funds we excessive when compared to similar funds that are generally only offered to institutional investors. As a rule larger employers are considered institutional investors due to the fact they invest significant amounts of their employee’s money in these mutual funds and would thereby be justified in receiving the lower fee mutual fund option.
Now many people will not think about what it means to save a little percentage point in fees but when you run the numbers it may surprise you. If a fund were a percentage point lower on average, it would save an employee approximately $70,000 over the course of their career. Now multiply that times several different mutual funds that could be purchased with lower institutional fees and you can see the profits slip away from your 401(k).
What does all of this really mean to the average employee? What it means is a company that established a 401(k) for its employees can no longer set it up and forget to do proper maintenance on the system. All companies that use the 401(k) now must do proper due diligence on investment choices that are being offered on an on-going basis and again can no longer state it was appropriate when we established the program. This means 401(k)’s should be properly managed going forward with the employee’s costs and investment choices being kept in mind by the administrators of these plans.
If you have any questions or need additional information feel free to contact me.
