6 December 2021

'Excessive' Fidelity Target-Date Fund Fees

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Quest Diagnostics is being sued by participants of its $3.9 billion 401(k) plan for allegedly charging excessive fees that stemmed from the addition of Fidelity actively managed target-date funds.

The suit, filed June 28 by the same attorneys who successfully settled with Gucci and Safeway and their registered investment advisors over lawsuits involving excessive fees, singled out the $8 million in fees Quest paid to include the Fidelity funds in its plan.

The lawyers bringing the lawsuit against Quest also sued and successfully settled with Safeway and J.P. Morgan Retirement Plan Services in May for selecting target-date funds (JPM Smartretire Passiveblend Funds) with allegedly excessive fees. The laws firms are Shepherd, Finkelman, Miller & Shah LLP and the Law Offices of Sahag Majarian.

While fiduciary lawsuits against 401k plans were once reserved for plan sponsors with the deepest of pockets, these days attorneys are singling out more mainstream plans and targeting excessive fees, according to a new whitepaper from Chubb and Groom Law Group titled, “The War on Retirement Fees: Is Anyone Safe?”

“The pace of ERISA class action filings is at an all-time high, and these cases are not only expensive to defend, but are also expensive to settle. Some of the largest settlements cost tens of millions of dollars,” Lars Golumbic, principal of Groom Law Group, said in a statement. “It’s therefore critical for plan sponsor fiduciaries to understand their risks and take steps to potentially reduce their exposure.”

In excessive fee claims, plan participants allege that plan fiduciaries have failed in their duty to ensure that plan recordkeeping and investment fees are reasonable. They also allege that plan investments have underperformed, costing participants millions of dollars in lost retirement benefits.

In the lawsuit against Quest, the plaintiffs claim the “defendants failed to compare the active and index suites and consider their respective merits and features.”

The suit also alleges that “a simple weighing of the benefits of the two suites indicates that the index suite is a far superior option, and consequently the more appropriate choice for the plan.”

The plaintiffs went on to claim that “in 2018 alone, the plan could have saved approximately $8 million in costs—which plan participants unreasonably paid for to their detriment."

The lawsuit claims that the active target-date funds have been “dramatically more expensive" than the index suite of funds, with riskier holdings and asset strategies. The plaintiffs also claim Quest showed “a glaring breach of [its] fiduciary duties” in selecting the funds.

Excessive fee claims are taking aim at a variety of plans, including 403(b) plans, multiple employer plans, defined benefit pension plans and even Employment Retirement Security Act (ERISA)-exempt plans, Golumbic said.

According to the Chubb-Groom white paper, these are some of the more common mistakes that are causing plan fiduciaries to be sued:

• Failure to negotiate for lower fees.

• Paying recordkeeping fees as a percentage of assets under management rather than at a fixed rate.

• Failing to use the least expensive mutual fund share class available.

• Offering too few or too many investment options.

Click here for the original article.

 

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