Fidelity is sued over 401k fees
According to the Wall Street Journal (subscription required), St. Louis attorney Jerome Schlichter has added Fidelity Investments and Deere & Co. to the list of companies he is suing over fee disclosures in 401k plans. Fidelity manages Deere’s 401k, and according to the Journal, Schlichter’s class-action suit says its fees “were and are unreasonable and excessive, no incurred solely for the benefit of the plan and its participants and undisclosed to participants.”
Schlichter has brought similar suits against 10 other employers, but this is the first time he has also sued a money manager.
As I’ve written in a column and a previous post, the 401k has clearly become the main retirement-savings vehicle for millions of workers, and murky revenue-sharing practices make it difficult for investors to know how much their plans cost. Maybe these lawsuits will push both regulators and employers to do away with conflicts of interest, provide better information and drive fees down.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
My general experience with various 401(k) plans is that the ones operated by the smallest companies generally have the highest expenses, and that these are very poorly disclosed. Part of the reason for the high expenses is the legitimate one of the managing company having to collect the plan’s administrative costs (some of which are essentially fixed) from fewer participants. But there is also the element of financial naivete on the part of the owners/managers of small companies who “buy” the plans based more on acquaintences with financial salespeople and their marketing hype, than on an objective comparison of alternative plans that particularly considers their costs.
Fidelity puts out its share of marketing hype, but generally has costs that are competitive. I think that there are a lot worse examples out there of using marketing hype to divert attention from exorbitant costs. One of these is the Principal Group, which (at least a few years ago) offered a 500 Index Fund with a 2% annual expense ratio in a 401(k) Plan (on top of other expenses).