Schlichter case in line for U.S. Supreme Court
Jerry Schlichter, the St. Louis lawyer who pioneered legal actions involving 401(k) retirement plans, won three federal court victories in the last month that advance his crusade against excessive fees.
The courts are increasingly recognizing the critical importance of 401(k) plans to Americans retirements, Schlichter, 65, said. The retirement savings plans are funded by employee contributions and matching contributions from employers and have largely replaced pensions.
The Eighth Circuit Court of Appeals in St. Louis affirmed a lower-court ruling that found ABB Inc., a power and automation technology company based in North Carolina, failed to monitor its plans costs and paid excessive fees by not negotiating rebates from investment companies with funds in the plan. The lower court awarded $13.4 million to the ABB plan participants.
Its a victory for all employees and retirees in 401(k) plans, not just ABB employees, because the court made very clear the fees must be monitored for reasonableness, said Schlichter, who founded the Schlichter Bogard & Denton firm in 1989. If not, the employer is responsible.
A federal district court in Minnesota issued an order against Ameriprise Financial Inc. that guaranteed the case will go forward on claims of excessive fees. And the U.S. Supreme Court showed interest in a case Schlichter filed against Edison International, a California utility; the justices asked the U.S. solicitor general to respond with the governments views on the case. If the court takes the case, it would be the first Supreme Court case involving excessive 401(k) fees, Schlichter said.
He said the legal cases are resulting in lower fees. That has always been the goal, to make sure fees are reasonable, he said.
Even a small increase in fees can be a big detriment to retirement savings; a 1 percent difference in fees makes a 28 percent difference over a 30-year career, according to the U.S. Department of Labor.
The work is a big risk for a little law firm such as Schlichter's because of the time and attorney hours required. For example, a $35 million settlement on behalf of Cigna employees nationally that was approved by the federal court in Champaign, Ill., took seven years and more than 33,000 attorney hours. If you don't win, all that time and money is gone, Schlichter said.
In approving Schlichter's legal fees of $11.7 million and $928,000 in costs in the Cigna case, Judge Harold Baker wrote, Schlichter Bogard & Denton has provided an enormous benefit to the Cigna employees and retirees class, while undertaking a great financial risk in the event of an adverse decision on the merits.
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