Another MEP targeted in 401(k) litigation, health care system sued

A participant in a multiple employer 401(k) available through the Coca-Cola Bottlers’ Association claims in a new lawsuit that excessive administrative and investment fees have eroded millions of dollars in savings within the plan.

The case is different from a 401(k) lawsuit brought last year against the largest U.S. Coca-Cola bottler. Instead, the new litigation targets the MEP used by 65 independent bottlers, representing at least the fifth such plan that has been sued over fiduciary claims in recent months.

In the new class-action case, law firm Foulston Siefkin alleges that the bottlers’ association and plan fiduciaries ran afoul of the Employee Retirement Income Security Act by failing to opt for the lowest-cost mutual fund share classes available, as well as collective investment trusts. The case also cites allegedly excessive record-keeping fees paid to Wells Fargo that varied from $49 to $109 per participant between 2015 and 2019.

The plaintiff also takes issue with a single-stock fund in the plan, the Coca-Cola Common Stock Fund. That investment option was inappropriate for the plan, given its low returns relative to a benchmark over one-, five- and 10-year periods, and for the fact that plan participants were not actually employees of Coca-Cola, according to the complaint. Because it was not an employer security, the plan fiduciaries were required to diversify the investment options, the lawsuit stated.

In 2019, the plan changed its target-date series, swapping investor-class shares of the T. Rowe Price Retirement series to a CIT version of the product, according to the Feb. 1 complaint filed in U.S. District Court in the District of Kansas. However, that decision came too late, the plaintiff alleges.

As of the end of 2018, the plan included 24 investment options, including 22 funds, a CIT and the stock fund, according to the complaint. The plan represented $799 million in assets at the end of 2019.

The Coca-Cola Bottlers’ Association did not respond to a request for comment.

PARTICIPANTS IN 403(b) FILE SUIT

Several plan participants in a 403(b) that was terminated in 2019 this week sued the plan sponsor, seeking compensation for assets lost to allegedly excessive fees and poor investment returns.

Atlanta-based Piedmont Healthcare shut down the Columbus Regional Healthcare System 403(b) after acquiring the latter entity in 2018, according to the Feb. 2 lawsuit filed in U.S. District Court in the Middle District of Georgia Columbus Division.

Though assets in the plan have since been distributed, the plaintiffs are pursuing several claims for breaches of fiduciary duty. They allege that Columbus Regional failed to provide a cost-effective plan, as it opted for a mutual fund menu largely consisting of actively managed funds that lagged their benchmarks. Between Jan. 1, 2015 and the plan termination on May 31, 2019, the plan allegedly lost $4.6 million due to excessive fees and underperformance, the plaintiffs allege.

Many of the funds on the menu were retail share classes, rather than much cheaper institutional shares, according to the lawsuit. The plaintiffs compared average investment fees within the plan to those of comparable Vanguard index funds, which were about six times less costly between 2015 and 2019, the complaint stated.

“A prudent fiduciary would have considered index funds,” the complaint read.

Further, the plan sponsor did not appropriately monitor the target-date series and stable value fund on the plan menu, the plaintiffs allege. The plan’s record-keeping costs were also about twice what a prudent fiduciary would consider, and the investment-management fees paid to Merrill Lynch were more than three times a reasonable rate, according to the suit.

Law firm Williamson and York represents the plaintiffs in the proposed class.

Piedmont Healthcare did not respond to a request for comment.

Related Topics: Employee Retirement Income Security Act