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
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
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
• Offering too few or too many investment options.
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