According to a report published on October 24 by Abernathy Daley 401(k) Consultants, approximately 80% of companies with 100 or more employees are overpaying in retirement plan administration fees. The firm conducted an extensive analysis of Form 5500 filings from over 6,500 employers, revealing that many are incurring excessive costs associated with managing 401(k) and 403(b) retirement plans.
These overpayments suggest that employers may not be performing independent benchmarks to ensure compliance with federal laws and alignment with their internal governance standards. This report follows a trend of high-profile lawsuits alleging mismanagement of retirement plans by employers, including excessive fee payments. A 2020 Aon report noted that 85 lawsuits related to excessive fees were filed in U.S. courts that year, which was significantly higher than the average in previous years.
Notable cases include General Electric, which settled a lawsuit for $61 million over claims of mismanagement of its 401(k) plan, and a pending lawsuit from Cornell University employees alleging failure to control administrative fees in their 403(b) plan, currently before the U.S. Supreme Court.
Steven Abernathy, chairman and CEO of Abernathy-Daley, highlighted the challenges faced by HR teams in managing retirement plans, especially among larger companies, suggesting that smaller organizations may be at an even greater risk of overpaying due to limited resources for comprehensive HR oversight.
Abernathy noted that retirement plan benchmark analyses can typically be completed in under a week, but implementation of findings can vary based on how quickly HR departments act. This includes selecting administrators with reasonable fee structures and ensuring employees have access to quality investment options. Effective communication is also crucial; Abernathy advocates for a combination of group presentations and individual meetings with financial educators to enhance employee understanding of retirement plans.
Additionally, a government watchdog organization recommended that the U.S. Department of Labor take measures to help plan participants better understand the fees they incur and the long-term impact of those fees on their savings, suggesting a broader need for transparency and education in retirement plan management.
