The federal government, and the Labor Department in particular, have a big role making sure these plans work the way they’re intended, and in (at least in theory) preventing people from getting swindled by investment managers. One of the main guardrails aspiring retirees have is what’s known as “fiduciary duty,” a rule that requires managers of both pensions and 401(k)s to provide the best possible service — here, meaning the best quality investments for the lowest possible cost — or face liability.
The fiduciary duty combined with workers being on the hook make the 401(k) sector a fertile breeding ground for high-stakes, multiparty lawsuits, where employers fight off accusations by workers and retirees of selecting low-performing and/or high-fee funds for their 401(k)s. An employer may negligently choose a retirement investment manager because they were the most readily available, or they didn’t have the resources to find an optimal plan, or they were mistaken of a fund’s potential. Other times — as was alleged against the Massachusetts Institute of Technology’s retirement plan last year when the school received a $5 million donation from Fidelity Investments — the employer might have an incentive for choosing a certain fund.
For many years, one of the most prominent employer-side litigators was Eugene Scalia himself. “None of the prior secretaries of labor, either Democratic or Republican, have been people who have been on the firing line against workers and retirees,” said plaintiff’s attorney Jerome Schlichter, whose law firm pioneered retirement excessive-fee litigation. Schlichter directly butted heads with Scalia in an ongoing retirement fund suit right up until his secretarial appointment.
Andy Behar, CEO of As You Sow, a nonprofit that rates the financial sector for its ethical standards, said that Scalia’s three most recent DOL rulemakings suggest a personal vendetta. “He’s couldn’t win as an attorney, so he’s changing the rules,” Behar said. Read Full Article - Rolling Stone, August 23, 2020