Kraft settles 401(k) excessive fee suit for $9.5 million. Plaintiffs claimed that the plan fiduciaries allowed excessive fees for funds that consistently underperformed their indexes. The suit had dragged on for five years.
Kraft had previously eliminated active management from their defined benefit plan due to under-performance but continued with active funds in the 401(k) plan.
Note that last July, U.S. District Judge Ruben Castillo, of the U.S. District Court for the Northern District of Illinois concluded that a jury could find that “a reasonably prudent business person with the interests of all the beneficiaries at heart” would have banned actively managed funds from their 401(k) plan as they had done in the Kraft defined benefit plan because they had concluded that active funds did not consistently outperform index managers.
Kraft never had to have this problem. A fund lineup of index funds would have had better performance, lower costs and eliminated another common fiduciary complaint about undisclosed fee sharing. See our article: The Fiduciary’s Default Investment Choice at: http://bit.ly/wkKOAZ