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401(K) Fee Claims

Definition

Claims alleging that the individuals responsible for administering a company's 401(k) retirement plan have allowed the plan's service providers to charge excessive fees. Over many years, even a small difference in the size of the fee charged to administer such plans can dramatically affect an employee's balance at the end of that period. Assume that investments within a 401(k) plan return 5 percent annually over a 40-year span of time. Also assume that an employee contributed $7,500 each year to the plan. If the employee paid a 2 percent annual fee during this period, he or she would end up with a balance of $565,509.45. But if the annual fee were lowered to 1.5 percent—a mere ½ of 1 percent reduction—the employee's balance would rise to $634,127.08—a $68,617.63 difference. Claims involving 401(k) plan fees can be especially costly in the event that a number of affected employees bring such litigation in a class action format. Fortunately, 401(k) fee claims are covered by fiduciary liability policies because such plans are governed by the Employee Retirement Income Security Act (ERISA).

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