Unions could be 'next frontier' for retirement plan litigation

New excessive-fee suit alleges multiemployer plan covering more than 27,000 participants breached its duties under retirement law

Dec 1, 2017 @ 1:50 pm

By Greg Iacurci

Defined contribution plans for labor unions appear to be the newest target of retirement plan litigation, following the filing of a lawsuit that legal experts say is likely the first to attack a union for excessive fees.

The lawsuit, Ybarra et al v. Board of Trustees of Supplemental Income Trust Fund et al, alleges fiduciaries of the Supplemental Income 401(k) Plan, a $922 million multiemployer plan covering more than 27,000 participants, breached their duties under retirement law by offering expensive mutual funds and record-keeping services that eroded investors' savings.

Plaintiffs Cesario Serrato and Felipe Ybarra, respectively current and former employees of San Bernardino Steel, filed the suit Thursday in California district court.

The lawsuit comes as excessive-fee cases have proliferated in recent years, and have expanded their tentacles into different corners of the retirement market.

"It could be the next frontier," said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm.

The case echoes those of many other lawsuits that since 2006 have alleged employers allowed their workers to pay excessive fees for plan services such as investment management and administration. Early cases involved large, private-sector corporations sponsoring multibillion-dollar 401(k) plans, including Lockheed Martin Corp., General Dynamics and International Paper.

Not only have those cases begun to move downstream to smaller corporate retirement plans, they've also targeted different sorts of institutions. Jerry Schlichter, the attorney credited with pioneering the initial tranche of excessive-fee suits, last year sued roughly a dozen private universities over their 403(b) plans.

Plaintiffs also have gone after financial services companies for alleged self-dealing, saying the firms profited at employees' expense by filling their own retirement plans with proprietary investment funds. There's also been a raft of litigation against employers over their employee stock ownership plans, as well as religiously affiliated hospitals sponsoring defined benefit plans.

"If you're trying to make a living as plaintiff's counsel, you need to find new targets that have substantial monies where you can make claims," said John Utz, an employee benefits and executive compensation attorney at Utz & Lattan. "Last year we saw the 403(b)s were new ground to plow. [Labor unions] were another area that hadn't yet been touched."

Multiemployer DC plans have a "different feel" from other types of DC plans, Mr. Utz said. There's a "natural tension" in the operation of union plans because they're overseen by a split between management and rank-and-file workers, he said, whereas those of the typical DC plan most often are overseen just by management.

"Plaintiffs' counsel might feel there are some differences there that are exploitable," Mr. Utz said.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video


Ric Edelman: 3 factors transforming the financial advisory industry

We are at the "knee in the curve" of a transformation of the financial advice industry, according to Ric Edelman. But what's next and how will it shape your practice of the future?

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Regulators showing renewed interest in cracking down on investment fees

SEC, Finra targeting high-fee share classes, 12b-1 fees and failure to give sales load discounts and waivers to investors.

Tax update: Brady says sales tax deduction in final bill

Taxpayers will be able to deduct state income taxes or state sales taxes in addition to property levies — up to a $10,000 cap.

Critics say regulation hasn't curbed overly rosy projections for indexed universal life insurance

They say rule didn't go far enough and more stringent measures may be necessary.

Broker, retirement groups make last-minute pleas to change tax legislation

Pass-through provisions are target of groups representing employee-model brokerage firms, as well as retirement plan advisers.

House and Senate reach tentative compromise for tax overhaul

Lawmakers still need to get a cost analysis of their agreement, so it's not yet definite, according to a source.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print