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Excessive Fee Suit Comes From a New Direction

Another plan sponsor has been charged in an excessive fee suit – but if the allegations are familiar, the law firm bringing the suit could represent a whole new “class” of litigation.

The suit (Barrett v. Pioneer Natural Resources USA, Inc., D. Colo., No. 1:17-cv-01579-WJM, complaint filed 6/28/17) was brought by plaintiff William Barrett, a participant in the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan which, on Dec. 31, 2015, had $500,187,123 in assets and 4,410 participants. The suit, as many others have, alleged that the plan’s size gave it “tremendous bargaining power to demand low-cost administrative and investment management services and well-performing, low cost investment funds” – but that rather than “…leveraging the Plan’s bargaining power to benefit participants and beneficiaries, the Pioneer Defendants chose inappropriate, higher cost mutual fund share classes and caused the Plan to pay unreasonable and excessive fees for recordkeeping and other administrative services.”

Fiduciary Failures

Specifically, the suit, which was filed in the U.S. District Court for the District of Colorado, alleges the plan fiduciaries breached their fiduciary duties of prudence and loyalty by failing to:


  • offer institutional class shares for mutual funds (which resulted in the participants paying excessive costs to invest in the funds);

  • make sure that plan fees were reasonable; and

  • remove the poorly performing money market fund when the stable value fund was available (which, according to the suit, resulted in losses to plan participants “who maintained excessively high cash balances in money market funds rather than the stable value fund, which offered higher returns and the same risk level”).


The suit notes that the Pioneer defendants chose Vanguard Group Inc. to serve as the plan recordkeeper and investment platform, as well as a number of Vanguard proprietary mutual funds as plan investment options. However, they took issue with the plan’s choice of Vanguard mutual funds that: (1) were not of the Institutional/Admiral share class (on average, 41% lower in cost than Vanguard’s standard Investor share class, according to the suit); and (2) were mutual funds, rather than collective investment funds, including the Vanguard Target Retirement Funds “even though much lower-cost collective trust Vanguard Target Retirement Funds were available to the Plan.” The plaintiff alleges that “had the amounts invested in the higher-cost target date mutual funds instead been invested in the lower-cost collective trust target date funds, Plan participants would not have lost hundreds of thousands of dollars in their retirement savings by paying higher fees.”

Additionally, the suit claims that “in 2015 alone the Plan participants paid excess fees totaling $53,251 because they invested in the Vanguard 500 Index Fund Investor share class rather than the Admiral share class.”

Moreover, they claimed that the fiduciaries “breached their fiduciary duty to the Plan by failing to conduct a review of all Vanguard funds offered to the Plan participants before and after May 2014 (when a lower cost share class was swapped in the plan) to determine whether different classes with lower expenses were available to the Plan.”

As other similar suits have alleged, this one challenges the use of asset-based charges for recordkeeping and the use of revenue-sharing practices. It claims that between 2012 and 2015, the number of participants in the plan rose from 3,939 to 4,410, and assets increased by 40.5%, but the plan's direct compensation paid to Vanguard more than doubled – from $141,924 to $291,794.

Review Views

Plaintiffs charge that the Pioneer defendants “had no annual review or other process in place to fulfill their continuing obligation to monitor and control Plan investment options, or, in the alternative, failed to follow their own processes.” The suit alleges, without citation, that “prudent fiduciaries of large defined contribution plans put the plan's recordkeeping and administrative services out for competitive bidding at regular intervals of approximately three years, and monitor recordkeeping costs regularly within that period.”

Finally, the suit challenges the plan’s decision to offer both a stable value fund (the Vanguard Retirement Trust V) and the Vanguard Federal Money Market funds as Short-Term Reserve investment options. The suit claims that doing so “provided no benefit to the Plan participants, but instead confused and misled the Plan participants by leading them to believe there was a material difference in the funds.” Then, as a result, the suit alleges, “many Plan participants who were eligible to invest in the Vanguard Retirement Trust stable value fund instead invested in the Vanguard Federal Money Market fund, which cost them an annual investment return of almost 2%” – missing out on what the suit claims would have been $1,500,000 in additional earnings on their investment.

While the suit treads familiar ground, it may be worth noting that the lawyers representing the plaintiffs are new to this type of litigation. Indeed, Franklin D. Azar & Associates P.C., holds itself out as a personal injury law firm that specializes in motor vehicle accidents, defective products and slip-and-fall accidents, according to its website. It is a firm that has, in recent months, been trolling for potential litigants.

Looks like they found one.

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