This year has been an active one for 401(k) litigators, with companies including Trader Joe’s, Estee Lauder, Costco and Oshkosh Corp. facing new lawsuits over plan costs in recent weeks.
On Monday, plaintiffs filed a class action case against Trader Joe’s in U.S. District Court for the Central District of California. The sponsor of the $1.7 billion 401(k) “did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent,” the plaintiffs alleged in the complaint.
Participants incurred record-keeping expenses of $48 per year during the class period beginning June 29, 2014, which is significantly higher than the average rate for plans of similar size, according to the complaint.
Additionally, the plaintiffs in the Trader Joe’s case allege that the company failed to include low-cost investment options in the plan, including the lowest-fee share classes that were available for otherwise identical funds in the plan.
Trader Joe’s did not respond to a request for comment by deadline.
The plaintiffs in that case are represented by law firms Rosman & Germain and Capozzi Adler, the latter of which also represents the proposed class in a similar case against Estee Lauder.
On June 22, the Estee Lauder class-action lawsuit was filed in U.S. District Court for the Southern District of New York. The plaintiffs allege that since June 22, 2014, the $1.6 billion plan has had excessive investment management and administrative expenses.
“The plan lost millions of dollars by offering investment options that had similar or identical characteristics to other lower-priced investment options,” according to the complaint.
The plaintiffs charge that Estee Lauder failed to consider lower-cost investment structures, such as collective investment trusts and lower-fee mutual funds, either passively or actively managed.
Record-keeping fees, which have varied considerably under the same record keeper, were as much as $56 per participant in 2014, dropping to as low as $24 in 2017 and then rising to $48 in 2018, according to the complaint.
Other 401(k) lawsuits were also recently brought against Costco and heavy-duty truck maker Oshkosh Corp., both filed by law firm Walcheske & Luzi.
On June 23, plaintiffs filed their class-action case against Costco in U.S. District Court for the Eastern District of Wisconsin, Green Bay Division. They allege that since the beginning of the class period, June 23, 2014, participants have overpaid for the plan’s record-keeping services as well as for investment options that moreover did not perform as well as peers.
“These investment options and unreasonable fees cannot be justified,” the complaint read. “Defendants’ failure to monitor and improve investment options confirms more than simply sloppy business practice.”
Costco declined to comment on the lawsuit.
Record-keeping fees “rose 500% from around $1 million per year in 2014 to $6 million per year in 2018, while the number of participants only went up 21%,” the plaintiffs stated in the complaint. “Although these costs on the surface are already unreasonable, these costs could actually be higher due to revenue sharing arrangements and indirect compensation.”
The plan is large, representing about $15.5 billion in assets among 174,000 participants as of the end of 2018, according to the lawsuit. The cost of the investment options were nonetheless higher than those in comparable 401(k) plans, the plaintiffs alleged.
Since 2014, the investment menu has consisted of 16 actively managed mutual funds, 12 index funds and 14 CITs, according to the complaint.
The class-action case against Oshkosh Corp. is similar, with plaintiffs leveling allegations that they have paid too much for plan administration and investment management.
That case is also in U.S. District Court in Wisconsin, with the plaintiffs filing claims on June 16.
The plaintiffs “continue to be harmed by the ongoing inclusion” of allegedly high-cost, poorly performing investment options, the complaint read.
That plan represented about $1.1 billion in assets among nearly 13,000 participants as of the end of 2018, the plaintiffs wrote. The investment menu has included between 16 and 18 actively managed mutual funds, one index fund and three CITs, according to the complaint.
The plaintiffs allege that the plan sponsor should have considered more CITs and passively managed funds, as well as lower-fee share classes of the funds on the plan menu.
Further, record-keeping fees were allegedly excessive, having risen nearly 250% between 2014 and 2018.
The lawsuit also alleges that the plan sponsor failed to address potential conflicts of interest with investment adviser Strategic Advisors and secondary consultant Baird, both of which are dually registered RIAs.
“The fact that disclosed fees paid to SAI increased [by] 445% – from $73,389 in the year 2014 to $400,305 in the year 2018 – strongly suggest either overpayments and/or non-disclosed fees paid to SAI from money managers during the period,” the complaint read.
Oshkosh did not respond to a request for comment by deadline.
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