ERISA 401(k) Excessive Fee Lawsuits: What Plan Participants and Sponsors Need to Know in 2026

Here is an uncomfortable truth about 401(k) plans: the most consequential decisions affecting your retirement savings are almost never made by you. They are made by the employer — or more precisely, by whoever the employer designates to run the plan. ERISA’s framework exists because Congress recognized that this structure creates serious potential for misaligned interests.

The result, over the past two decades, has been a sustained wave of class action litigation focused on one deceptively simple question: did the people who ran the plan do so with the care and loyalty that the law demands?

This guide addresses that question from two perspectives — the plan participant trying to understand whether something is wrong with their plan, and the plan sponsor trying to avoid becoming a defendant.

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What ERISA Actually Requires: The Two Foundational Duties

ERISA imposes two core obligations on anyone who qualifies as a plan fiduciary.

Duty of Prudence: A fiduciary must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.” The operative word is process. Courts do not grade fiduciaries on whether the market went up or down. They ask whether the fiduciary did the homework a knowledgeable professional would do before making that decision.

Duty of Loyalty: A fiduciary must act solely in the interest of plan participants and beneficiaries — not the employer’s bottom line, not the relationship with a preferred vendor, and not personal gain. When a fiduciary’s decision is colored by any interest other than the participant’s, the loyalty obligation is implicated.

Both duties apply to fee-related decisions. Prudence asks whether the fiduciary adequately investigated fees and alternatives. Loyalty asks whether the decision was free from conflicting interests.

A high expense ratio alone isn’t a breach — the question is the prudence of the process. That distinction matters because it shapes what plaintiffs must plead and what defendants must prove.

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Anatomy of an Excessive Fee Claim

Excessive fee litigation tends to cluster around several recurring theories.

Institutional Share Classes

Many large mutual funds offer multiple share classes that hold identical portfolios but charge different fees. Retail investor shares cost more. Institutional shares — available to large buyers — cost less. When a plan of substantial size uses the higher-cost retail class while the institutional class is available, plaintiffs argue the fiduciary failed to investigate or negotiate for the cheaper option. This is arguably the cleanest version of an excessive-fee claim because the comparison is direct: same fund, same manager, same strategy, lower price available.

Recordkeeping Fee Claims

The plan’s recordkeeper — the company that maintains accounts, sends statements, and handles compliance — charges for its services. Those charges can be structured as a flat per-participant fee or as an asset-based fee. When asset-based fees apply to a growing plan and no competitive bidding has occurred in years, the total fees paid can far exceed what the market would produce. Plaintiffs point to the absence of a request for proposals (RFP) process as evidence of imprudent process.

Revenue Sharing and Conflicts of Interest

Some mutual funds pay a portion of their expense ratios back to the recordkeeper as compensation for being included in the platform. This revenue sharing can reduce or offset the plan’s direct recordkeeping costs — but only if the fiduciary is monitoring it. When revenue sharing benefits the recordkeeper while participants bear higher embedded costs, and the fiduciary is unaware or indifferent, a conflict-of-interest claim becomes available.

Imprudent Fund Lineup

Plans that have gone years without replacing a persistently underperforming fund — when the investment committee has no documented review — face a different theory: not just high costs, but imprudent investment management. The claim is not that the fund had a bad year, but that the committee failed to conduct the ongoing monitoring that any qualified investor would perform.

A Framework for Prudent Process vs. Red Flags

Category	Signs of Prudent Process	Red Flags
Investment selection	Documented comparative analysis; IPS in place	No written criteria; fund selection based on prior relationship
Share class selection	Evidence that institutional classes were investigated	Retail share classes for a plan large enough to access institutional pricing
Recordkeeping fees	RFP conducted within past 3 years; benchmark data retained	Same recordkeeper for 10+ years; no comparison analysis
Revenue sharing	Monitoring documented; offset arrangements tracked	No awareness of revenue sharing amounts
Ongoing monitoring	Regular committee meetings; minutes with substance	Meetings without documented deliberation; no fund review process

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How These Cases Proceed: From Complaint to Resolution

The procedural arc of an ERISA excessive fee class action generally looks like this.

Filing and Pleading: One or more current or former participants file a complaint. Under controlling Supreme Court precedent, plaintiffs must plausibly allege a breach — meaning the complaint needs more than just “fees are high.” It should show a meaningful comparison to available alternatives, identify specific investment options at issue, and characterize the alleged process failure.

Class Certification: The court determines whether the case should proceed as a class action. If class certification is denied, the individual plaintiff can still pursue their own claim, but the economic incentive changes dramatically. Class certification hinges on whether common questions predominate — usually they do in fee cases because the same investment lineup affected all participants.

Discovery: This is where plan sponsors either feel protected or exposed. Committee meeting minutes, Investment Policy Statements, fee comparison analyses, recordkeeper contracts, and email chains among decision-makers all come into play. A well-documented committee is a well-defended committee.

Resolution: Most ERISA fee cases settle before trial. Settlements typically include a monetary payment distributed to class members and sometimes structural relief — requirements to conduct an RFP, update the fund lineup, or modify fee arrangements. Whether settlement terms are favorable depends on factors specific to each case.

For related investor protection issues, see our guide to investment fraud recovery attorneys and securities fraud class action attorneys.

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Three Illustrative Scenarios

These scenarios are hypothetical and intended to illustrate how courts analyze these claims — not to represent any actual case or suggest specific dollar outcomes.

Scenario 1 — The Overlooked Institutional Class

A mid-sized employer’s 401(k) offers a well-known large-cap growth fund in its Investor class. The same fund family offers an Institutional class with a materially lower expense ratio, accessible to plans of this asset size. The investment committee has never discussed share class optimization and has no record of investigating alternatives. The committee’s annual meetings focused on general economic updates rather than fee analysis.

An ERISA litigator reviewing this fact pattern would say: this is worth investigating. The committee’s failure to compare available classes, combined with an absence of process documentation, is the type of gap plaintiffs exploit. If the employer can show that other factors — for example, the bundled education services only available with the Investor class — justified the cost differential and the committee actually deliberated on that tradeoff, the calculus changes.

Scenario 2 — The Stale Recordkeeper Relationship

A plan has used the same recordkeeper for more than a decade. No RFP has been issued. The per-participant recordkeeping cost, when calculated from the plan’s financial statements, is well above the range that independent consultants typically cite for plans of comparable size. The plan’s committee meeting minutes do not reflect any discussion of recordkeeping costs.

Again, the exposure here is process-based. It is not that loyalty to a long-term vendor is inherently wrong. It is that ERISA requires fiduciaries to know what the market charges and to be able to justify what they pay. Without that documentation, the committee cannot defend itself effectively.

Scenario 3 — Revenue Sharing in the Dark

A plan’s recordkeeper receives revenue sharing from several of the plan’s actively managed funds. These payments partially offset recordkeeping costs. However, the investment committee was not aware of the revenue sharing amounts and did not account for them in evaluating total plan costs. The committee also never compared the all-in cost of the revenue-sharing funds against revenue-sharing-free alternatives.

This scenario implicates both prudence (failure to understand total costs) and loyalty (potential for incentives that favor the recordkeeper over participants). The remedy often sought is disgorgement of improperly retained revenue sharing amounts.

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What Plan Participants Should Do

If you are currently enrolled in a 401(k) plan, ERISA entitles you to fee information. Here is how to use it.

Read Your Fee Disclosure Notices Federal law requires your plan to send annual fee disclosure documents. These should itemize the expense ratio for each investment option and disclose administrative fees. Most participants discard these. Read them instead.

Compare to Low-Cost Alternatives For each fund in your plan, look up the expense ratio of a comparable index fund in the same asset class from a major low-cost provider. This is not a perfect apples-to-apples comparison — an actively managed fund and an index fund serve different investment strategies — but significant gaps deserve scrutiny.

Raise It in Writing If you have specific concerns, send a written inquiry to your plan administrator or HR department. Ask how often the plan’s investment options are reviewed and whether a competitive bidding process has been conducted for recordkeeping services. The written record matters.

Consult an ERISA Attorney Many plaintiff-side ERISA attorneys take fee cases on contingency — no upfront cost to participants. If the fee analysis suggests a material overcharge, an initial consultation with an ERISA litigator is the logical next step. They can evaluate whether the facts support a plausible claim.

If your plan has also denied a disability claim, see our guide to long-term disability ERISA appeals.

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What Plan Sponsors Should Do to Reduce Fiduciary Risk

The defense in an ERISA excessive-fee case almost always comes down to one question: can you prove you followed a prudent process? That means documentation is not a bureaucratic formality — it is the defense itself.

Establish and Follow a Written Investment Policy Statement An IPS sets the criteria for selecting, monitoring, and replacing investment options. Having one and not following it is worse than having none — it becomes a roadmap for plaintiffs to show deviation. Having one and following it is the strongest available defense.

Conduct Periodic Fee Benchmarking At a minimum, compare the plan’s investment and recordkeeping costs against market data every two to three years. Retain the analysis. If you decide not to change providers after benchmarking, document why.

Run Competitive Processes for Recordkeeping Issuing an RFP for recordkeeping services every three to five years is not just good practice — it is increasingly viewed as the baseline of prudent process. Even if you re-select the same provider, the process demonstrates market awareness.

Maintain Substantive Committee Minutes The minutes should reflect what materials the committee reviewed, what questions were asked, and what reasoning led to the decision. “Investment committee meeting held — no material changes” is not a defense.

Engage an Independent Advisor Working with a qualified, independent plan advisor or ERISA attorney — someone without a financial interest in the plan’s fund lineup — and documenting that engagement adds a layer of prudence that courts recognize.

For issues related to whistleblower claims and employer misconduct, see our guide to False Claims Act qui tam attorneys.

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Warning Signs in Your Own Plan

These are not legal conclusions — but they are patterns worth examining.

• Every investment option is an actively managed fund; no index fund is available
• Multiple funds share the same fund family and you are unsure why
• You cannot find or were never sent an annual fee disclosure notice
• The plan has never issued a request for proposals for recordkeeping services
• When you asked HR about fees, no one could give a specific answer
• Expense ratios on your plan’s funds are consistently higher than publicly available institutional equivalents
• Your 401(k) statement shows an “account maintenance fee” charged monthly that seems disconnected from investment returns

None of these alone proves a breach. But each one suggests a question worth asking — and, if the answer is unsatisfying, worth escalating to an ERISA attorney.

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Conclusion: Process Is Everything

ERISA’s fiduciary framework reflects a bet that if you require the right process — careful, documented, loyal to participants — the right outcomes will generally follow. Courts do not second-guess prudent decisions. They challenge unprudent processes.

For participants, the practical implication is that you have more leverage than you likely realize. Federal law gives you the right to fee information, the right to ask questions, and ultimately the right to sue. Exercising the first two costs nothing.

For plan sponsors, the message is equally clear: the documentation of your process is your defense. A committee that deliberates carefully and writes it down will be in a very different position from one that doesn’t when a complaint arrives.

When in doubt, consult an ERISA attorney before the situation becomes adversarial.

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Disclaimer: This article is for general informational purposes only and is not legal, tax, or insurance advice. Consult a licensed professional for your situation.