401k Retirement Plan Abuses

As the U.S. population ages, more and more people are focused on their retirement and, specifically, how they can afford to pay their expenses during retirement. Many of these retirees will rely on their employer-sponsored retirement savings plans (defined-contribution plans) to support them during retirement. Unfortunately, 401k retirement plan abuses are common and decrease the amount of savings available to provide for retirees when their working days are behind them. 

What Is a Defined-Contribution Plan?

Many employers used to offer pension funds (defined-benefit plans) that were managed by the employer and paid out a steady income to retired employees. But as the cost of running pensions increased, employers replaced them with defined-contribution plans of resulting in many 401k retirement plan abuses. 

A defined-contribution plan is an employer-sponsored, retirement savings plan that allows employees to take pre-tax deductions from their paychecks. Employees then invest the payroll deductions in various mutual funds and money market funds offered by the plan, with the hope of protecting and growing the assets until retirement. The three most common types of defined-contribution plans are: (1) 401(k) plans primarily offered by for-profit companies; (2) 403(b) plans offered to employees of public schools, churches, and certain other tax-exempt organizations; and (3) 457(b) plans offered to state and local government employees, including police officers, firefighters, and other civil servants. 

Employees’ payroll deductions invested in these retirement savings plans are not taxed until the money is withdrawn from the plan, typically during an employee’s retirement. The theory is that the employee will be in a lower tax bracket when they are retired and not earning any income. As such, the retirement fund withdrawals, which were contributed to the plan on a pre-tax basis, will be taxed at a lower rate. 

How Much Money is at Issue?

It has been reported that defined-contribution plans held $8.2 trillion in total retirement assets in the United States as of June 19, 2019. In other words, trillions of dollars of retirees’ savings are subject to many abuses inherent in many defined-contribution plans.

Abuses in Defined-Contribution Plans

Unfortunately, many 401(k), 403(b), and 457(b) retirement plans have excessive administrative fees, contain fund investment choices that are far more expensive than institutional versions of the same funds, and engage in improper fee-sharing arrangements. These excessive costs and fees violate fiduciary duties owed by the employers that sponsor the retirement plans and the investment company providers that oversee the investment accounts. The end result is that hundreds of millions of dollars or possibly billions of dollars of employees’ retirement savings are being depleted and squandered as a result of these excessive fees and costs. 

What Can Be Done About the Abuses?

A number of class-action lawsuits have been filed over the past decade on behalf of retirees whose defined-contribution plan investments were decreased by excessive fees and costs and other improper conduct. While not all of these cases have been successful, many of the cases have resulted in the recovery of millions of dollars for the investors. We expect that many more such cases will be filed in the coming years, as our research reflects that many defined-contribution plans continue to engage in abusive and improper conduct that causes millions of dollars in damages to investors. 

Securities Regulators Have Gotten Involved

Apparently recognizing the widespread, costly abuses in the retirement savings industry, the U.S. Securities and Exchange Commission has initiated an investigation into misconduct in defined-contribution plans. 

We are hopeful that the combination of continued class action lawsuits and regulatory pressure will cause retirement plan sponsors, providers, and administrators to begin respecting their fiduciary obligations and stop overcharging investors for fees and costs. Until then, those saving for retirement will continue to suffer the consequences. 

Speak with a Retirement Plan Attorney

Dimond Kaplan & Rothstein, P.A. has vast experience representing investors who have lost money as a result of the misconduct of others. We will aggressively pursue class-action lawsuits to recover your squandered retirement savings.

If you are looking for a retirement savings attorney to review your rights and options, contact a 401(k) fraud lawyer at Dimond Kaplan & Rothstein, P.A. to schedule an appointment for a FREE case evaluation. 

Our offices are located in Los AngelesNew YorkDetroit, West Palm Beach, Naples, and Miami, and we represent clients nationwide. Translation services are available. 

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