Chicago-based energy conglomerate Exelon Corp. was sued Monday over the fees in its $10.7 billion 401(k) plan.
In a proposed class-action complaint filed in U.S. District Court in the Northern District of Illinois, a group of plaintiffs’ law firms allege that the company breached its fiduciary duties by switching from low-cost mutual funds to in-house managed funds. The plan sponsor also allowed record-keeping and managed account service fees that were much higher than industry averages for similarly sized plans, the plaintiffs claim.
In 2014, the company swapped out the Vanguard Target Date Retirement funds on its menu for a proprietary series overseen by the Exelon Investment Office, according to the complaint. The energy provider similarly changed out various other low-fee investment options for in-house actively managed investments in the fixed-income, U.S. equity and international equity categories, the plaintiffs’ firms noted. Management fees for the in-house funds were at least twice as high as those of passively managed mutual funds available from outside providers, the complaint stated.
Participants have had access to other funds in an “expanded choice” menu since 2018, although they must “actively seek them out, and some are even forced to sign paperwork to get access to those options,” the plaintiffs stated. “This has the effect of steering plan participants’ investment decisions towards the proprietary funds.”
Additionally, per-participant record-keeping fees were averaged nearly $100 annually, or nearly three times what might be considered a competitive rate for a plan as big as Exelon’s, according to the complaint.
The plaintiffs also take aim at the Financial Engines managed account services available through the plan, which have higher fees than an online advice program that was previously offered to participants. The current managed account option charges 45 basis points on the first $100,000, 40 bps on the next $150,000 and 30 bps on assets over $250,000, according to the complaint.
The Personal Advisor program available through Financial Engines provides a dedicated adviser to a participant, with advice covering multiple accounts. That service has fees of 95 bps on the first $100,000, 90 bps on the next $150,000 and 85 bps on assets above $250,000.
The plaintiffs cite lower-cost options available through providers such as Betterment, Vanguard and Charles Schwab, with fees ranging from 25 bps to 30 bps.
The proposed class includes at least 40,000 participants or beneficiaries, according to the complaint.
Exelon did not immediately respond to a request for comment.
The complaint includes claims for failure to prudently and loyally manage the plan’s assets, failure to adequately monitor other fiduciaries and breaches of co-fiduciary duties of prudence and loyalty.
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