Mon, November 16, 2009
Caterpillar Settles Suit Over Excessive 401(k) Fees
Construction-equipment manufacturer Caterpillar recently announced its willingness to settle a lawsuit in which it was accused of charging excessive fees in four of its employee 401(k) plans.
Lawsuits alleging that certain employers’ retirement plans charge unreasonable fees have been around for several years. But it’s unusual for a large corporation to back down on this kind of lawsuit, because many such suits have been thrown out of court. The fact that Caterpillar has agreed to settle this suit is therefore significant.
The company has agreed to pay $16.5 MM to 80,000 current and former plan participants. As part of the settlement, Caterpillar has also agreed to change the core investments in its 401(k) plans, replacing retail mutual funds with less-expensive institutional funds. It will also allow an independent monitor to keep tabs on the plans for two years.
Unfortunately, when your retirement plan is really bad, you may have no choice but to press for legal action. Often it can be difficult to even know what fees you’re paying in a 401(k) plan, but legislation currently under consideration would require companies to do a better job of disclosing defined contribution plan fees.