As ERISA groupies know, a 401(k) plan is a defined contribution plan, as opposed to a defined benefit plan. In general, defined contribution plans don’t present the same kind of problems as defined benefit plans when an employer goes under; the money in 401(k) plans is generally safe.
Compare this to Dewey & LeBoeuf’s old defined benefit plans. The firm had three defined benefit plans covering about 1,800 people. These plans were underfunded, to the tune of more than $80 million, and they have been taken over by the federal government (in the form of the Pension Benefit Guaranty Corporation).
But money in the Dewey 401(k) plan, a defined contribution plan that’s fully funded, should be safe — right? Well, not entirely. From a former Dewey employee:
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I was under the mistaken belief that my 401k savings plan managed by Dewey & LeBoeuf was not reachable by Dewey & LeBoeuf. I should have known better. Dewey & LeBoeuf assessed a 1% fee on all accounts on July 10, 2012. I am told a notice went out, but I did not receive it. Fidelity reported that participants in the Dewey & LeBoeuf 401k savings plan were charged an a fee due to D&L’s bankruptcy and ongoing termination of plan participation in order to offset the costs of managing the plan.
Any questions are to be directed to D&L benefits. D&L still has benefits? I rolled the assets over to another account in case Dewey & LeBoeuf needs to assess any more “fees.”
Said a second:
One percent for 6 weeks of administration, quite a deal. Definitely plan to ask an ERISA lawyer if this is legal.
A third former D&L employee provided us with more detail, as well as documentary evidence (reprinted on the next page):
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I received an alert from Mint.com that a 1% “administrative fee” had been assessed on my Fidelity 401(k) accounts. Long story short (and I’m happy to give the fuller story if needed) is the attached document, buried on the Fidelity website and, according to the BPAS [Benefit Plans Administrative Services, Inc.] person I just got off the phone with, that was mailed contemporaneously with the assessment of the fee. The woman I spoke with claims the bankruptcy court and IRS have authorized this move – made without any advance notice whatsoever.
The upshot of this move as I see it: Former D&L partners, who as you know will likely be subject to significant profit clawbacks, have up to now had their 401(k) accounts frozen (see point 4 of the letter). In effect, the staff is paying 1% of our retirement account balances to make possible the unfreezing of the partners accounts… and why? Obviously so that they can be used to help defray their clawbacks.
This is total BS. Can it possibly be the case that the IRS and bankruptcy court gave the okay to do this?!?
I asked this source for the basis for his argument that “the staff is paying 1% of our retirement account balances to make possible the unfreezing of the partners accounts.” He responded:
As you can see, the letter asks people with questions to contact Fidelity. Fidelity, you may not be surprised to know, has instructions to direct people to call one of two numbers at D&L for further information, because Fidelity doesn’t have any: (212) 259-8032 or (212) 424-8588. I spoke to someone at D&L who, not surprisingly again, had nothing official to tell me other than D&L had terminated the plan. He intimated that there was a connection between the planned unfreezing of partner accounts and the 1% fee, but said I should direct my question to BPAS (he gave me the name and number of a contact person there).
The woman I spoke with at BPAS told me among other things, that assessing the 1% fee without effective notice “was the most equitable way of ensuring that the adminsitrative costs of the plan would be covered.” I asked her if by “equitable” she meant the staff was putting up their money so that the partners could take theirs out, and of course she demurred. A longer conversation ensued in which she insisted that they had authorization from the Court and IRS to do what they did.
Having calmed down a bit, I should qualify: The document itself does not draw a direct connection between unfreezing of partner accounts and the 1% fee. But it stinks big time. And, by the way, the letter is a lie: It’s dated June 29, but by the BPAS’s own admission, it wasn’t even given to Fidelity until the first week of July.
Can this be kosher? Doesn’t Fidelity have to give actual notice before assessing this kind of fee in the middle of the year?
Good questions. If anyone has thoughts, please feel free to share them in the comments. Perhaps the lawyers at Outten & Golden who are representing former Dewey employees in WARN Act litigation can look into these issues as well.
When Dewey filed for bankruptcy, we knew things were going to get ugly. These specific issues — the pursuit of former partners, the disposition of client files, and pension problems — are simply the latest manifestation of the ugliness.
Dewey will eventually shed the weight of all those client file boxes. But ugly is forever.
(You can check out the Dewey 401(k) notice, as well as links to collected news coverage, on the next page.)