Important Caterpillar 401(k) Fees Litigation On The Way to Settlement
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.
For the second autumn in a row, the federal public defenders here in Milwaukee were kind enough to invite me to speak on the U.S. Supreme Court’s criminal docket, reviewing last term’s cases and previewing the new term. The event is a great opportunity for me to think about patterns and themes that cut across individual cases. I plan now to recapitulate some of my obervations in a series of short blog posts over the next couple weeks. This is the first.
Many people value certain environmental resources even if they have never actually visited or “used” those resources. For example, a person might assign what economists call “nonuse values” to the Grand Canyon, the Great Barrier Reef, or a particular endangered animal species even if she has never hiked the Canyon, gone scuba diving on the Reef, or personally encountered that endangered species. Some scholars have categorized nonuse values into three types: the “option value” is the value a person places on preserving an environmental resource so that she has the option of using it in the future; the “bequest value” is the value the person places on being able to preserve the resource for the enjoyment of future generations; and the “existence value” is the value the person places on the mere knowledge that the resource exists.