Liberty Mutual is facing a class-action lawsuit brought by its own 401(k) participants, who allege the plan’s record keeping fees were out of control.
The plaintiffs are represented by the Naumes Law Group, as well as law firm Schlichter, Bogard & Denton, which has become almost synonymous with retirement-plan litigation. Along with claims related to record keeping costs, the plaintiffs allege that the company breached its fiduciary duty by including two underperforming investment options on the $7 billion plan’s menu. They also allege that the plan’s fiduciaries failed to rein in costs from the managed-accounts provider, Financial Engines.
The case was filed April 10 in U.S. District Court in Massachusetts.
“Multi-billion dollar defined contribution plans, like the plan, have tremendous bargaining power to obtain high quality, low-cost administrative, managed account and investment management services,” according to the complaint. “Defendants allowed unreasonable expenses to be charged to participants for administration of the plan and for managed account services, and retained poorly performing investments that similarly situated fiduciaries removed from their plans.”
Liberty Mutual declined to comment, with a company spokesperson stating that the firm does not speak publicly about litigation.
Participants in the plan have paid asset-based record keeping fees of about 5 basis points since at least 2009, according to the complaint. That led the plan as a whole paying about $3.2 million between 2009 and 2018 to the record keeper, Hewitt Associates, the plaintiffs wrote.
“As one of the plan’s recordkeepers noted as early as 2008, the cost of recordkeeping services depends on the number of participants (or participant accounts), not on the amount of assets in the participant’s account,” according to the lawsuit. “Thus, the cost of providing recordkeeping services to a participant with a $100,000 account balance is the same for a participant with $1,000 in her retirement account.”
The plaintiffs also allege that payments made from Financial Engines to Hewitt violated the Employee Retirement Income Security Act, as Hewitt had no role in managing assets that were part of the service. Neither Financial Engines nor Hewitt, or Aon Hewitt’s successor firm, Alight Solutions, were named as defendants. Fidelity Investments is now the record keeper, according to the complaint.
The lawsuit also cites two investment options – the Sterling Mid-Cap Value Portfolio and the Wells Fargo Government Money Market Fund – which the plaintiffs said have lagged their benchmarks. Regarding the money market fund, the complaint cited stable value funds as a superior investment option.
The plaintiffs are seeking restitution for alleged losses, restoration of profits and other relief.
The recently filed cases is more evidence that the pace of ERISA litigation is not necessarily slowing, despite courthouses being physically closed amid the COVID-19 pandemic.
On Tuesday, a separate class-action case was filed against Cerner Corporation over that company’s 401(k) plan. Plaintiffs in that lawsuit allege the company violated ERISA by funneling much of the plan’s assets to the company’s own stock, which was used as the matching contribution. Between March 31, 2014 and March 31, 2020, the stock returned a net of about 12%, while mutual funds tracking the S&P 500 returned an average of about 56%, the lawsuit stated.
The plaintiffs also allege that the company failed to consider cheaper share classes of the mutual funds used in plan or different investment products, such as collective investment trusts or separate accounts.
Cerner declined to comment on the lawsuit.
The plaintiffs in that case are represented by law firm Foulston Siefkin. The lawsuit was filed in U.S. District Court in Kansas.
Cerner has faced similar allegations in the past, which the plaintiffs allude to in the recently filed suit. One difference, though, is that the lead plaintiff in the new case reportedly did not sign an arbitration agreement, “upon which [the] defendants have relied in their recently filed motion to dismiss” in the older case, according to the complaint.