Why Are So Many 401k Plans Being Sued?

Updated : Aug 30, 2019 in Articles

Why Are So Many 401k Plans Being Sued?


Hey everyone, Bill Lethemon
here for moneyevolution.com. In today’s video blog, I wanna talk about the recent rash of
activity of 401(k) plans that have been sued by
their plan participants. So as many of you probably know, I’m not actually a big
fan of 401(k) plans. In fact, I’ve written several blog posts and have several other videos where I talk about why
I think 401(k) plans are not necessarily the best
investment for many people. But in this particular video, I wanna talk about some of this activity. And it seems like it’s getting
more and more prevalent. And what I actually find
most interesting with this is that many of these 401(k)
plans that are being sued by their employees are
actually from the firms of financial institutions. So I printed out a bunch of articles here and I’m just gonna read
you some of these headlines and this took me about
five minutes to find these. If you just type in to a search engine 401(k) plan sued by their employees, you’ll find all kinds of these things. But Fidelity sued by employees
over its own 401(k) plan, so that’s one there. Attorney Jerry Schlichter opens up about 403(b), 401(k) lawsuits. So, 403(b) plans, for those
of you that don’t know, that’s basically the non-profit
version of a 401(k) plan. So they’re not immune to this either. There’s another one about
Fidelity here in this, and then JP Morgan sued for
self-dealing in its 401(k) plan. And a lot of these lawsuits center around the choosing of the investment options for these 401(k) plans, a lot
of them center around fees. And then this article here,
that was from Forbes Magazine, employers beware of a
tsunami of 401(k) lawsuits, could your be company be next? And this goes on to talk
about several of the lawsuits that are out there right now and basically this references
also the JP Morgan lawsuit, but it also says that companies such as Boeing, Caterpillar, Kraft
Foods, International Paper, Northrop Grumman, United
Technologies, ABB, Principal Life Insurance
have also been targeted with these lawsuits. Last year Lockheed
Martin Corporation agreed to the largest ever
retirement plan settlement, 62 million dollars, over
claims the company invested more the 180,000 employees’ 401(k) savings in overly costly funds. So this is kind of a big deal. Why are we talking about this? Well, it’s something that just brings some awareness to this. Fortunately some laws are
getting a little bit better. Companies are now required
to at least once a year disclose their fees and tell you how much the 401(k) plan is actually costing. But I wanted to also bring this
out because the 401(k) plan, again, may not necessarily
be the best option. So here’s how to kind of
take advantage of this. Number one is if your company is offering any kind of a match, no matter
what is in the 401(k) plan almost, within reason,
it’s hard to pass that up. It’s basically free money. We don’t wanna leave that on the table. So if your company is matching you on the first 6% of contributions, make sure you’re at
least contributing enough to get that full matching contributions, but beyond that, I would
consider some other options. The option that I tend to like the best is the Roth IRA option
because I think that tax rates right now, believe it or not, are actually relatively low and they’re more likely
to go up in the future and it gives you some tax diversification. Plus by having your own Roth IRA account, it basically, depending
on where you have it, gives you an almost an
unlimited option for investments that you can put inside
the Roth IRA account. So I like that. Another option that you
may want to consider too, and this is something that doesn’t pertain to all 401(k) plans, but if you’re kinda
stuck with that 401(k), check out and inquire
whether or not they have a self-directed investment option. This is something that’s
increasingly becoming more and more popular with
a lot of 401(k) plans. And what that basically
is it’s a separate account you can set up within your 401(k) plan and that can give you many more options that you can choose from outside
of the regular basic menu that they offer and allow you some additional access that way. So anyway, beware on the 401(k) plan. A lot of people I think have assumed that the 401(k) plan is just the default, the best option to be saving
their money for retirement. But really do some homework on this and know, especially, that
your 401(k) plan is not free. So that’s it for this video. Hope you enjoyed it. Again if you’re watching this video any place other than our
blog at moneyevolution.com, head over there, check that out. Got lots of free resources, lots of educational videos and blog posts about a whole bunch of
different financial topics. Thanks, I’ll see everyone
in our next video.

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