Nestle sued over its 401(k)

A new 401(k) lawsuit filed last Friday against Nestle USA targets the administrative and managed accounts fees the plan's participants have paid since 2014.

Unlike most other excessive fee claims filed amid this year's enormous surge in 401(k) litigation, investment management costs are not at issue in the case. Rather, the plaintiffs in the class-action lawsuit cite record-keeping and administrative costs that were allegedly more than twice as expensive as what the nearly $4.3 billion plan could have negotiated.

The managed accounts service, which were also provided by Voya, the record keeper, also had higher fees than similar services available from firms such as Betterment, Vanguard and Charles Schwab, the plaintiffs wrote in the complaint.

“With 39,472 participants in the year 2018, the plan had more participants than 99.97% of the defined contribution plans in the United States,” the complaint read.

“The plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the lawsuit stated. “Defendants, however, did not sufficiently attempt to reduce the plan’s expenses or exercise appropriate judgment to monitor each investment option to ensure it was a prudent choice.”

The average per-participant record-keeping and administration fee was $60 per year in the Nestle Plan between 2014 and 2018, according to the lawsuit. Meanwhile, comparably sized 401(k)s have fees of about $28 or less, the plaintiffs stated.

Nestle USA did not respond to a request for comment by deadline.

The law firm representing the plaintiffs and the proposed class, Walcheske & Luzi, filed the claim in U.S. District Court in the Eastern District of Wisconsin Green Bay Division.

The case is one of many that have been filed this year against retirement plan sponsors, with plaintiffs’ law firms seeking to cash in on the success achieved during years of prior litigation by firms such as Schlichter Bogard & Denton.

Although mutual fund fees are a common theme in many of the recently filed suits, administrative costs are also frequently cited, and other lawsuits have similarly focused on managed accounts services.

In the Nestle plan’s case, managed account fees were tiered, at 50 basis points on the first $100,000, 40 bps on the next $150,000 and 25 bps on assets in excess of $250,000, according to figures cited in the lawsuit. The plaintiffs point to fees paid in similarly sized 401(k) plans that are significantly lower, as well as overall fees from some providers that range from 25 bps to 30 bps on all managed account assets.

Voya, which is not named as a defendant, has been retained as the Nestle plan’s managed account provider since 2010, according to the complaint.

The plaintiffs brought several claims under the Employee Retirement Income Security Act, including alleged breaches of loyalty and prudence for both administrative and managed accounts fees, failure to monitor fiduciaries and prohibited transactions for administrative fees Nestle received from the plan.