Russell, Wake Forest, Generac targeted in lawsuits

Russell Investment Management has been sued again over the use of its products in a retirement plan — this time the $517 million Royal Caribbean 401(k).

The case, filed Monday, is similar to one brought weeks against Russell and Caesars Holdings, with one of the same law firms, Nichols Kaster, representing the proposed class.

In the newer case, the plaintiff alleges that Russell went against its fiduciary duty under the Employee Retirement Income Security Act in 2015 by filling the plan menu with its own investments. Those funds, including its target-date series, underperformed options from other managers and cost participants money in terms of unrealized gains, according to the complaint filed in U.S. District Court for the Western District of Washington. The prior target-date manager was Vanguard.

“By adding over $300 million in new investment from the plan, Russell was able to prop up its struggling proprietary funds, which were losing other investors amid Russell’s performance and reputational shortcomings,” the complaint read. “Russell’s funds continued to underperform until Russell was eventually removed as the plan’s outsourced investment fiduciary in the middle of 2019, less than four years after assuming the role. In the meantime, the plan suffered millions in lost investment returns.”

In a statement provided by a company spokesperson, Russell disputed the claims.

“We believe this suit is without merit and we intend to vigorously defend the firm against these allegations,” the statement read.

GENERAC SUED

Generator maker Generac was sued Tuesday over allegedly excessive fees in its $176 million 401(k) plan.

A plaintiff in the proposed class-action ERISA suit claims the Wisconsin-based manufacturer did not seek competitive bids for record-keeping services and permitted investment options that had higher fees than necessary.

Between 2015 and 2019, participants paid an average annual record-keeping fee of $90, according to the complaint, while a more reasonable rate would have been $52. Similar-sized plans paid anywhere from $20 to $64 for such services during those years, law firms representing the plaintiff stated. The fees that participants paid to Transamerica Retirement Solutions, which is not named as a party in the suit, included administrative fees it charged directly as well as money it received through revenue sharing paid by mutual funds, according to the suit.

Meanwhile, the plan investment options were more expensive than other options, including different share classes of the same funds — which in some cases had higher net fees but a larger proportion of revenue sharing that theoretically would be rebated to participants. Even so, there were other fund options from competitors for various types of investments on the plan menu that would have been less expensive, according to the ERISA complaint, which was filed in U.S. District Court in Washington, which is where the plaintiff lives.

The complaint was brought by law firms Walcheske & Luzi and Keller Rohrback, both of which have a history of 401(k) litigation.

In a statement provided by a public relations firm representing Generac, the company noted that it “is committed to providing employees a comprehensive benefits package” but could not comment on litigation.

MEDICAL CENTER SUED OVER 403(B)

Capozzi Adler, likely the most prolific filer of new ERISA retirement plan lawsuits over the past year, recently targeted Wake Forest University Baptist Medical Center.

In a lawsuit filed June 4 in U.S. District Court for the Middle District of North Carolina, the firm alleges that the medical center failed participants in its $2.3 billion plan by allowing excessive record-keeping and investment management fees.

Workers paid a range of $110 to $155 annually for record-keeping costs between 2015 and 2019, while a national average was closer to $40 for plans of that size, according to the complaint.

Further, nearly $1 billion of the plan’s assets in 2019 were invested in funds that had higher fees than those in similar-sized plans, the law firm stated. In one case, a fund on the plan’s menu charged fees of 90 basis points, while a lower-cost share class of the same product was available at 45 bps, according to the complaint.

Capozzi Adler also cited median total plan costs from an Investment Company Institute report of 22 bps for plans with at least $1 billion in assets. By comparison, the Wake Forest 403(b) had total plan costs of 52 bps in 2019, according to the complaint.

A representative from Wake Forest did not respond to a request for comment.

TWO SETTLEMENTS

Serco Inc., an IT service management provider with Department of Defense contracts, recently settled a lawsuit over its 401(k) plan for $1.2 million.

A plaintiff filed a class-action case against the company last year alleging that it breached its duties under ERISA by failing to select prudent investment options. Both administrative and investment management fees were excessive, the plaintiff alleged.

A settlement was reached earlier this year, and terms of the deal were published June 1 in U.S. District Court for the Eastern District of Virginia Alexandria Division.

The class is represented by six different law firms and includes participants who were in the plan between Jan. 1, 2014, and Feb. 22, 2021. The Serco 401(k) represented $439 million as of the end of 2019, according to data from the Department of Labor.

Separately, Philadelphia-based engineering firm CDI Corp. this week settled a 2020 lawsuit over its 401(k) plan for $1.8 million.

Plaintiffs in the class-action lawsuit filed in U.S. District Court for the District of Pennsylvania alleged that CDI violated its ERISA duties by not prudently selecting and monitoring investment options, leading participants to pay more than they needed to for investment management. The $247 million plan included funds that underperformed other options from competitors, were costlier and in some cases were available in lower-fee share classes than those used within the plan, according to court documents.

As much as 30% of the settlement amount will go to attorneys’ fees. Law firm Edelson Lechtzin represents the plaintiffs.

Related Topics: ERISA, Fiduciary