The document summarizes recent 401(k) fee lawsuits against plan sponsors and discusses best practices for sponsors to avoid costly litigation. It notes that nearly 40 lawsuits have been filed since 2006 regarding issues such as excessive fees, revenue sharing violations, and imprudent investment options. Settlements have typically required sponsors to reduce fees, improve investment options, and enhance disclosures. The document examines some high-profile lawsuits and concludes by recommending sponsors closely monitor fees, benchmark expenses, and document their oversight to stay out of legal trouble.

1. The message is clear for defined contribution (DC) plan sponsors: follow
best practices established for plan fees or risk getting stuck in a costly and
time-consuming lawsuit.
Nearly 40 401(k) fee lawsuits have been filed since 2006. The first gen-
eration of lawsuits focused on revenue-sharing violations, failure to under-
stand specific costs, and use of retail mutual funds in 401(k) lineups. Over
time these lawsuits have expanded in scope, covering everything from the
prudence of offering certain stable value funds to adherence to investment
policy statements.
In addition to monetary payments, settlements have typically included
requirements to:
• Competitively bid plan recordkeeping services
• Engage an outside consultant
• Utilize institutional or retirement-share classes where possible
• Add passively managed funds to the lineup
• Comply with the Department of Labor’s participant disclosure regulation
In this charticle, Callan describes select DC fee lawsuits. We suggest best
practices to help plan sponsors keep their plan on the path to success.
Muddy Waters
Recent fee lawsuits that reached settlement
Amount of Settlement ($mm) vs. Duration of Lawsuit (years)
2 6 10 14
$0
$10
$20
$30
Settlement($mm)
Years
Median = $15 Million
$120
$150
LAWSUIT
SPOTLIGHT
Tibble v. Edison
In May 2015, the U.S. Supreme Court reversed the Ninth Circuit Court
of Appeals’ ruling that the 401(k) fee lawsuit of Tibble v. Edison Inter-
national was time-barred, remanding the case back to the Ninth Circuit
Court of Appeals. The case dates back to 2007, when participants in the
Edison 401(k) Savings Plan sued plan fiduciaries for losses suffered due
to breach of fiduciary duty relating to mutual funds in the plan’s lineup.
Plaintiffs argued that Edison fiduciaries imprudently offered higher-priced
retail-class mutual funds when materially identical, lower-priced institution-
al-class mutual funds were available. However, the defendants argued
that ERISA requires a breach of fiduciary duty complaint to be filed within
six years, and the breach occurred when the funds in question had been
initially added to the plan, which was more than six years before the com-
plaint was filed. The District Court agreed that the complaint was untimely
and the Ninth Circuit affirmed. The Supreme Court’s decision focused on
the failure by the Ninth Circuit to consider fiduciaries’ ongoing obligation
to monitor and remove imprudent investments. Fiduciaries must prudently
select funds AND prudently revisit fund selection on an ongoing basis.
For this reason, the Supreme Court remanded the case back to the Ninth
Circuit to determine if a prudent review process had been in place. The
Supreme Court expressed no view on the scope of respondents’ fiduciary
duty, leaving it to the Ninth Circuit to make this determination.
Don’t get bogged down.
Fee Lawsuits =
Time + Money
Take
action
now.
Path to
Success =
Benchmarking
+ Regular
Documentation
Years
Lost
Amount of largest fee
lawsuit settlement
to date
MILLION
The minimum
number of years
taken to settle a
fee lawsuit
DC plan sponsors
that reduced
plan fees after
reviewing them
No One is Immune: Lawsuits by Industry
Grocery 4.2%
Retail 4.2%
Robotics 4.2%
Paper 4.2%
Utility 4.2%
I.T. 4.2%
Healthcare 4.2%
Energy 4.2%
Education 4.2%
Automotive 8.3%
DC plan fee lawsuits have popped up across a diverse array of
industries, as illustrated in this chart.
Aerospace
25.0%
Finance
16.7%
Construction
12.5%
DC Plans and Fee Lawsuits
Stuck in the Mud or
Road to Success?
Sources: 401(k) Fee Cases, Groom Law Group, Chartered. January 27, 2015;
Callan 2015 DC Trends Survey

2. 0% 20% 40% 60% 80% 100%
Change the way fees are paid
Conduct a recordkeeper search
Switch certain funds to
lower-fee share classes
Renegotiate recordkeeper fees
Rebate participant fees/
revenue sharing
Conduct a fee study 31.5% 20.2% 22.5% 25.8%
24.7% 11.8% 21.2% 42.4%
20.5% 23.9% 26.1% 29.5%
12.2% 34.4% 20.0% 33.3%
11.4% 11.4% 12.5% 64.8%
10.3% 13.8% 25.3% 50.6%
Very likely Somewhat likely Somewhat unlikely Very unlikely
0% 10% 20% 30% 40% 50% 60%
Customized survey of
multiple recordkeepers
Customized survey of
other plan sponsors
Data from individual
recordkeeper’s database
General benchmarking
data (such as from CIEBA)
Consultant database
20.0%
27.7%
43.1%
52.3%
26.2%
20.0%
27.7%
43.1%
52.3%
26.2%
What fee-related actions are you most likely to take in the next year?
More than half of plan sponsors are either somewhat or very likely to conduct a fee study in
2015 (51.7%), an increase from 2014 (44.7%).
Fee benchmarking: How is it accomplished?
Plan sponsors often use multiple data sources to benchmark fees. 2015 survey respon-
dents indicate a consultant database is the most frequently used resource.
Staying on the Right Path
Tips for Plan Sponsors and Fiduciaries Navigating
DC Plan Fees
ERISA regulation 408(b)(2) requires plan sponsors to obtain dis-
closures of all direct and indirect compensation associated with
the DC plan. Still, according to Callan’s 2015 DC Trends Survey,
only about half of plan sponsors both calculate and benchmark
plan fees. This indicates that many others are on a perilous path.
Callan recommends calculating and benchmarking fees on an
annual basis alongside other best practices:
Rigorously adhere to Section 408(b)(2)
requirements—this responsibility falls to the plan
sponsor, not the vendor
Diligently avoid prohibited transactions, such as
subsidizing other benefits through the 401(k) plan
Faithfully comply with the language of the
investment policy statement and review it regularly
Carefully document fee monitoring efforts
Annually examine and benchmark all plan fees
George v. Kraft Foods
In this case, first filed in October 2006, the allegation was that
Kraft had violated its ERISA fiduciary duties by allowing exces-
sive fees, holding excessive cash within the plan’s company
stock funds, and offering imprudent funds as investment options.
A district court had initially dismissed the lawsuit (“Kraft I”), but it
came back to life on appeal (“Kraft II”). In February 2012, after
more than five years of litigation, the parties agreed to a settle-
ment of both the “Kraft I” and “Kraft II” lawsuits, and it was ap-
proved in June 2012. The settlement called for Kraft to pay $9.5
million into a settlement fund.
Tussey v. ABB
This lawsuit, filed in December 2006, originally alleged a number of breaches
of fiduciary duties under ERISA. The District Court in Missouri originally ruled
against fiduciaries for (i) failing to monitor or negotiate recordkeeping costs and
(ii) paying its recordkeeper, Fidelity, excessive fees in order to subsidize the cor-
porate services provided to ABB by Fidelity. The Court also found that ABB en-
gaged in a prohibited transaction by replacing an existing plan investment with a
Fidelity fund. The Eighth Circuit Court of Appeals vacated much of the judgment,
but did affirm the judgment of breach of fiduciary duty under ERISA by ABB for
failing to monitor or negotiate recordkeeping costs, and for paying Fidelity exces-
sive fees. The case has been sent back to the District Court. Prior to the Eighth
Circuit’s decision, ABB had been ordered to pay $35 million in penalties.
LAWSUIT
SPOTLIGHT
LAWSUIT SPOTLIGHT
Callan’s 2015 DC Trends Survey
Callan’s annual survey of DC plan sponsors covers a wide range of topics. The following two
charts use survey data to illustrate plan sponsors’ actions around plan fees.
LAWSUIT
SPOTLIGHT
Braden v. Wal-Mart Stores
This lawsuit, filed in March 2008, claimed
that millions of dollars of Wal-Mart employ-
ees’ retirement savings were squandered
on overpriced mutual funds. The case was
settled in March 2012, under which terms
the defendants were expected to pay a
total of $13.5 million. The settlement also
describes several potential changes that
should be made to the plan’s investment op-
tions, investment education programs, and
participant disclosures. The case had more
than 560,000 pages of documentation and
six to eight depositions for each fiduciary. It
took four years to settle at a cost of $13.5
million.
Million
Years
Lost
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May 2015 | © 2015 Callan Associates Inc.
This report is for informational purposes only and should not be construed as
legal or tax advice on any matter. Any investment decision you make on the
basis of this report is your sole responsibility.
For more information, please visit www.callan.com, email
institute@callan.com, or contact your Callan consultant.
Sources: 401(k) Fee Cases, Groom Law Group, Chartered. January 27, 2015; Callan 2015 DC Trends Survey