Fiduciary Breaches Could Quietly Undermine Retirement Accounts, Study Shows
Plan administrators carry a legal duty under ERISA to act in the best interest of participants. This includes monitoring service providers, controlling fees, and maintaining fee transparency. When these responsibilities are ignored or poorly managed, participants may face steep losses over time.
The financial impact can be substantial. Data cited in the study shows that even a one percent increase in retirement plan fees can reduce total savings by up to 28 percent over 35 years. That reduction could amount to tens or even hundreds of thousands of dollars for individual account holders. A chart from the Department of Labor illustrates how savings accumulate under different fee scenarios, assuming steady contributions and returns over time.
Recordkeeping fees offer a clear example. While competitive rates hover around $35 per participant annually, some plans pay as much as $150 per person. These inflated charges suggest a failure to negotiate fair rates or to vet service agreements thoroughly.
Investment choices also raise concern. Analysis of data from the Investment Company Institute indicates that 67 percent of retirement plans still use higher-cost retail-class mutual fund shares, despite the availability of lower-cost institutional alternatives. This decision, often overlooked, increases participant costs without improving performance.
Benchmarking can help control these expenses. Administrators are expected to compare their plan's fees against similar offerings. Failure to do so may result in participants absorbing fee increases of up to 13 percent. When benchmarking is ignored, plans may drift further away from industry standards, placing additional strain on future retirement security.
Litigation linked to excessive retirement plan fees has surged in recent years. According to statistics reviewed by J. Price McNamara, more than 200 class-action lawsuits have been filed since 2015. In 2020 alone, 90 suits targeted employers for fiduciary violations. Between 2017 and 2021, excessive fee litigation rose by over 50 percent.
Notable settlements underscore the risks of noncompliance. In 2019, MIT agreed to pay $18.1 million to resolve claims of excessive fee practices. That same year, Johns Hopkins University settled for $14 million. These outcomes reflect growing legal and financial exposure for plan sponsors and fiduciaries who fail to maintain adequate oversight.
Participants have legal options when fiduciary duties are breached. Administrators must regularly disclose all fees and adjust plan structures to keep costs competitive. If savings have been diminished due to excessive charges, individuals can pursue restitution through legal action. Successful claims not only help restore lost funds but often lead to improved management and oversight practices.
The study concludes that recent regulatory changes have improved fee disclosure requirements, yet many plans still fall short. Inadequate governance, lack of transparency, and poor provider oversight continue to drive legal challenges. With litigation rates climbing, awareness of one's rights as a retirement plan participant has never been more important.
J. Price McNamara's research emphasizes the need for proactive financial literacy and regulatory enforcement. Retirement security depends not only on contributions and returns but also on how well fiduciary responsibilities are upheld.
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