The Starwood hotel chain is the most recent target in litigation alleging excessive 401(k) fees, with former employees claiming that high investment-management and record-keeping costs caused retirement-plan participants "well in excess of $25 million" in damages.
In addition to causing participants to pay unreasonable fees, plaintiffs in the proposed class-action lawsuit claim the company breached its fiduciary duty by putting a money market rather than a stable value fund on the plan's investment menu, not adequately disclosing revenue-sharing payments, and failing to ensure participants' investment directions were followed.
The suit, Charles Creamer et al v. Starwood Hotels and Resorts Worldwide Inc., was filed Dec. 16 in California district court.
Bruce Hicks, a spokesman for Marriott International, which acquired Starwood earlier this year, said the company doesn’t comment on pending litigation.
The lawsuit adds to a quickly growing list of litigation concerning defined contribution plans.
Plaintiffs, who typically target prominent institutions with multibillion-dollar plans, have been broadening their scope in terms of their allegations as well as reach into new areas of the DC market.
In a first, litigators this summer brought more than 10 separate suits against universities regarding fees in their 403(b) plans. A handful of lawsuits this year have also concerned smaller 401(k) plans, with $25 million or less.
The Starwood 401(k) plan has roughly $1.2 billion and more than 43,000 participants, according to BrightScope Inc.
Plaintiffs in the Starwood suit claim the plan's index funds caused participants to “pay seven times more than a reasonable fee due to multiple layers of fees.”
For example, institutional shares of BlackRock's LifePath 2050 index target-date fund has net operating expenses of 20 basis points, in addition to operating expenses of the underlying index funds, such as 8 basis points for the BlackRock Russell 1000 fund, according to the complaint. That's a 24-basis-point surcharge to the overall expense ratio of 4 basis points for institutional shares of Vanguard's Institutional Index Fund, plaintiffs claim.
Over a six-year period, excessive fund and record-keeping fees cost participants roughly $20 million and $9 million, respectively, according to plaintiffs, who said fiduciaries hadn't engaged in a competitive bidding process for record-keeping services during that time.
They also contend Starwood “failed to follow the explicit instructions of plan participants,” failing to honor the investment elections of one of the plaintiffs in each year between 2010 and 2015, putting 100% of assets into BlackRock TDFs instead of the six funds he had designated.