Schlichter makes millions on 401(k) fee fights

St. Louis Business Journal
by Greg Edwards, Reporter

It's not an exaggeration to say that St. Louisan Jerry Schlichter pioneered legal actions challenging excessive fees in 401(k) retirement plans.

The retirement savings plans, which are funded by employee contributions and matching contributions from employers, have existed only 40 years and have been rapidly replacing pensions for years. Assets in 401(k) plans total an estimated $3.6 trillion.

Schlichter, 64, started his Schlichter Bogard & Denton firm in 1989, representing people in all kinds of legal actions on a contingent-fee basis. Eventually people came knocking who were concerned they weren't going to have enough for retirement, in part because their 401(k) fees were so high.

Recently his firm reached a $35 million settlement on behalf of Cigna employees nationally that is awaiting approval from the federal court in Champaign, Ill. It's one of 14 similar suits in which Schlichter's firm has won not only industry reforms but also millions, many in confidential settlements, over the last seven years on behalf of employees and retirees at companies such as Bechtel Corp., Caterpillar, General Dynamics and Kraft.

He discussed his practice with the Business Journal.

You researched 401(k) plans for two years before getting into this work. What did you conclude?

I came away convinced there were some abuses, including excessive fees, self-dealing and conflicts of interest. Some of the practices were, frankly, shocking.

How significant are the fees?

The Department of Labor has found that a 1 percent difference in fees makes a 28 percent difference in retirement benefits over a 30-year career.

What are the risks for your firm in bringing these cases?

You have to put in tremendous time. The Cigna case took seven years and 33,000 attorney hours, as well as substantial expenses for experts. If you don't win, all that time and money is gone.

A few years ago you were named the third most influential person in the 401(k) industry. Why?

It's because of the effect these lawsuits have had on industry practices and the reduction in fees. Some in the industry may not like it, but they acknowledge it.

Outside of your 401(k) work, one case involved $10 million on behalf of would-be railroad workers. Tell us about that.

I represented a group of 300 African-Americans from the East St. Louis area who had applied for jobs with the Illinois Central Railroad at a time in the 1980s when it was hiring hundreds of employees. My clients didn't even get interviews.

Other notable cases?

I represented about 5,000 women nationally who were employees and applicants at Rent-A-Center. Over 98 percent of the company's employees were male. Gender harassment was widespread, and the company held meetings at strip clubs. We reached a $47 million settlement in 2004, and the company dramatically reformed its hiring practices.

You spearheaded the formation of the Missouri State Historic Tax Credit and founded Arch Grants.

They come out of a desire to energize and revitalize St. Louis as a place that's vibrant and that will attract and retain young people and companies.

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