Here’s a term you really don’t want used to describe your401(k): “One of the most expensive plans in America.”

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That’s what law firm Nichols Kaster calls the $1.3 billionretirement plan at the center of a proposed classaction against Fujitsu Technology and Business of AmericaInc.

In a lawsuit filed last week in San Jose federalcourt, the attorneys alleged a cornucopia of fiduciarybreaches tied to excessive fees, record keeping, and thecomponents of the company's target-date funds. The case, andseveral like it in the past year, may be harbingersof a new cycle of 401(k)-gone-bad litigation, this timetargeting ever-smaller retirement plans.

Nichols Kaster compared the Fujitsu plan’s fees with thoseof about 650 other plans with more than $1 billion in assets. Among401(k)s with that much money, the average plan has annual coststhat amount to 0.33 percent of assets, according to thecomplaint; it estimates that Fujitsu’s costs were 0.88and 0.90 percent for 2013 and 2014.

That would have led to at least $7 million in excess fees thatcould have been socked away in employee nest eggs, thecomplaint stated. Fujitsu America, which provides technology andbusiness support to affiliated companies, has yet to answer thecomplaint or make an appearance in the case, and a companyspokesman declined to comment.

Lawsuits such as this one are just the beginning, said MarciaWagner, a principal at the Wagner Law Group who represents plansponsors and vendors under the Employment Retirement IncomeSecurity Act. The case follows a parade of high-profilesuits filed by Jerome Schlichter, of the St. Louis lawfirm Schlichter Bogard & Denton, alleging breaches offiduciary duty at some of the largest plans in the U.S.

The mega-settlements Schlichter has won,along with a U.S. Supreme Court ruling last year that putplan fiduciaries on high(er) alert about the need to continuouslymonitor plan investments, has encouraged more lawfirms to develop and expand their fiduciary litigationpractices.

“It started with Schlichter doing cases against very largecorporations in America," Wagner said. "And now it's going tostart to be a free-for-all.”

The focus of the suits is expanding as well, with a wider arrayof plan permutations and fees coming under scrutiny. "The paceof cases being filed has quickened, and the areas of challenge havebroadened," said Richard McHugh, a lawyer and vice president ofWashington affairs for the Plan Sponsor Council of America, whichrepresents defined contribution plans.

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Additionally, he thinks the U.S. Department ofLabor's new fiduciary rule will widen thenumber of defendants who are named in these lawsuits.

With more attorneys seeing an opportunity, smaller plans arestarting to feel the heat. After launchingfour 401(k) lawsuits alleging breach of fiduciary dutylate last year, Minneapolis-based Nichols Kaster has filed fourmore in 2016, most recently against Fujitsu and American Century's $600 million plan. This yearhas even seen a 401(k) plan with less than $10 million in assetsget hit with a lawsuit, a development that garnered the attentionof many players in the small plan universe.

The complaint against Fujitsu alleges that the plan'sparticipants were made to pay high fees for its choice ofimprudent investments—imprudent, in some cases, because theplan failed to use the cheapest share class for manymutual funds. In one instance, it allegedly used a class withan expense ratio that was 43 basis points higher than anotherit could have used.

The complaint also highlighted what it deemed "idiosyncratic"investments in custom target-date funds created byBoston-based investment advisory firm Shepherd Kaplan LLC, which isalso a defendant in the lawsuit. The firm, which became the plan'sinvestment adviser in late 2011, was a “named investment fiduciary”until July 31, 2015. Shepherd Kaplan General Counsel Bruce Goodmansaid the complaint is without merit.

Target-date funds automatically rebalance portfolio holdingsamong asset classes as savers get closer to their retirementdate. The custom target-date funds allocated “a wildlyexcessive percentage of assets to speculative asset classes such asnatural resources, emerging market stocks, emerging market bonds,and real estate limited partnerships,” the complaint againstFujitsu stated.

A number of the funds used by the plan allegedly had trackrecords shorter than three years and were “extremelyexpensive.” As of Nov. 30, 75 percent of the target-date funds hadunderperformed their benchmarks, the plaintiff employeesclaimed.

An unusual wrinkle in the case is the large role that one fund,the Shariah-compliant Amana Growth Fund, played in the plan. At theend of 2014, Fujitsu's plan held over $225 million in AmanaGrowth, which was used in the plan's target-date (also calledlifecycle) funds as a large-cap growth offering.

Yet the plan still used the share class available to retailinvestors, with fees of 1.10 percent, rather than theinstitutional share class that became available in 2013, which hada fee of 0.87 percent. In 2014, that decision led to morethan $500,000 in excess fees, the lawyers claimed.

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Part of the issue with Fujitsu's use of the Amana fund isthat its performance history might not be due to strong managementbut instead to the fund’s unique dictates. It can't invest infinancial stocks or very leveraged firms because of a prohibitionon paying or receiving interest, said Carl Engstrom, a lawyer withNichols Kaster.

The fund also stays away from energy and real estate stocks.Those caveats mean it doesn't closely track large-cap growthbenchmarks, so it could be problematic in an asset allocation fundthat's designed to track benchmarks. “So they smell like arose from 2007 to 2008 because it looks like they intelligentlyavoided financial stocks when its not indicative of that—theirhands were tied,” said Engstrom.

The complaint also highlights a practice that many 401(k) planparticipants may not know exists: “revenue sharing” between the company offeringthe funds and the plan's sponsor — the employer. It's an allowablepractice, though it's become more controversial in recent years. Asthe complaint describes, in some cases it can mean thatemployers benefit from keeping high-cost investments in theplan because they allow for "revenue sharing" to subsidize theplan’s administrative costs.

Nichols Kaster alleges that was the motivation of the Fujitsuplan, and that because of this practice, it paid about $3million in excess record-keeping fees in 2011. In a regulatoryfiling for the Fujitsu Group Defined Contribution and 401(k) Plan,the plan's administrator noted that a major service providerreceived indirect compensation. "Substantially all expensesincurred for administering the plan are paid by the plan,"according to the filing. "Certain fees applicable to the investmentoptions are netted from the returns of those investments."

The 401(k) improved its offerings at the start of 2016, the lawfirm noted. It moved some investment options into theleast-costly share classes, and in March again changed theplan’s management and investment lineup, hiring a new adviser asfiduciary and replacing all the “Fujitsu LifeCycle” funds with anew set of customer target-date funds called the “FujitsuDiversified” funds (it also replaced most of thefunds in the plan).

"Unfortunately for the plan and its participants," lawyers forthe employees wrote in the complaint, by moving to cheapershare classes Fujitsu "did not refund the millions of dollarsin excessive fees that participants needlessly paid due todefendants' failure to make this change years earlier."

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