Important Caterpillar 401(k) Fees Litigation On The Way to Settlement

401K_2 From Forbes.com yesterday:

In the war over hidden and excessive 401(k) fees, investors may have won a battle in Illinois.

Caterpillar, the heavy equipment manufacturer in Peoria, Ill. has agreed to settle a class action alleging that employees and retirees in its 401(k) plans were overcharged by potentially millions of dollars.

If a federal judge and independent fiduciary approve the deal the parties struck, Caterpillar will pay $16.5 million to settle the case. More importantly, it has agreed to make changes to its 401(k) plan that could potentially save employees millions of dollars. More important still, it may set a precedent for other companies to follow . . . .

The Caterpillar plan’s record-keeping fees would be limited, according to the memorandum on file with the court. Record-keeping fees can add substantially to investor costs. The fees are often based on assets under management, so an investor pays more as his or her balance increases. At Caterpillar, such fees will henceforth be calculated on a flat or per-participant basis . . . .

The settlement is a rare victory for investor advocates. In February, in a 401(k) case against Deere & Co., a federal appeals court judge ruled in favor of the employer. Jerome Schlichter, the plaintiffs’ attorney with Schlichter, Bogard & Denton, who handled both the Caterpillar and Deere suits, has sued a dozen other companies over their 401(k) plans, including Exelon, General Dynamics  and International Paper. He says he is appealing the Deere case to the U.S. Supreme Court. The Supreme Court is already hearing a separate case, Jones vs. Harris Associates, which involves the question of whether mutual funds over-charge for their services.

It might be appear to be common sense for companies to engage in these types of disclosures with regard to plan fees, but litigation is proving that such is not the case.

William Birdthistle (Chicago-Kent) and I previously wrote an amicus brief in the Hecker v. Deere case that is referred to above and it discusses some of these very inequities that currently exist in the way participants in 401(k) plans are charged for mutual fund fees.  I have also joined an amicus cert. brief in the Deere case which will be filed this Monday.

This Post Has One Comment

  1. Hashim

    Caterpillar is not the only company charging lots of fees on their employees’ 401k plans, Ford is another large capitalization firm that does that. For instance, here’s an excerpt from

    Ford Motor Co. proved no exception, so we asked Dr. Kasten to review Ford’s 401k plan; one of the biggest plans in the country with nearly $12 billion in assets.
    Source: http://www.research401krollover.com

    According to Greg for the year 2004, the most recent year available, the returns were less than 0 – 4/10ths of a percent to be precise. The poor performance was due to a # of reasons, but were hidden brokerage costs one of them? Kasten says, yes! Kasten discovered 0.43% in hidden brokerage fees, which translated into $17.2 million. Overtime, that half a percent can make a bigger difference than you might expect for each of the workers in the Ford plan.

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