Nordstrom Plan Participant Claims 401(k) Plan Fees No Bargain

Another large company has been sued for alleged fiduciary breach claims over excessively high fees in the company’s 401(k) plan.

Plaintiff Megan McCorvey has filed a class action complaint against Nordstrom and the Nordstrom 401(k) Plan Retirement Committee, alleging that the plan’s fiduciaries breached their duties of prudence by selecting and retaining investment options with excessively high fees relative to other lower cost options. The suit, McCorvey v. Nordstrom, Inc., and Nordstrom 401(k) Plan Retirement Committee, was filed Nov. 6 in the U.S. District Court for the Central District of California.

McCorvey argues, among other things, that Nordstrom failed to use the leverage it says the plan’s $2.6 billion in assets should have enabled it to obtain reasonable fees for plan participants. In addition, she argues that the plan fiduciaries failed to adequately and prudently manage the plan by not using lower-cost investment vehicles and that they provided inadequate disclosures on fees.

The suit – a remarkably brief 22-page filing – points to survey data showing that from 2006 to 2015, the estimated annual administrative cost of 113 large plans fell by nearly half (that survey has since been updated – see “Large Plan Recordkeeping Fees Snap ‘Losing’ Streak”), but contends that Nordstrom’s plan administrative fees increased by 30% from 2011 to 2016. Stating that plan participants incurred extra costs of $13.7 million from 2011 to 2016, McCorvey argues that, “These administrative fees are excessive and double the amount of reasonable fees. A reasonable administrative and recordkeeping fee per person is $30.”

McCorvey further alleges that Nordstrom failed to state the specific dollar amount it charged plan participants for administration expenses in its annual notice on fees. In addition, she contends that Nordstrom did not disclose to plan participants either revenue-sharing payments or how the payments were applied. “Without this information, it is not possible to determine whether the revenue sharing amounts were reasonable in relation to administrative costs,” the suit claims.

Operating Fees of Plan Investment Options

The suit further argues that the annual operating fees charged for many of the plan’s investment options were “substantially higher than reasonable management and operating fees of comparable funds, both index and actively managed funds.”

According to the suit, $1.9 billion of the plan’s assets were in investments costing on average at least 42 basis points in annual operating fees, which the suit contends were as much as 16 times higher than comparable index funds and 2.7 times higher than comparable actively managed funds. McCorvey claims that the funds could have been “easily replaced” by lower-cost index funds, target retirement funds or actively managed funds that had the same investment objectives and similar, if not better, performance records.

Arbitration?

The suit notes that Nordstrom may contend that this class action is precluded by its dispute resolution program requiring employees to engage in arbitration on various matters. Attorneys for the plaintiff, however, point to the decision Munro v. University of Southern California in arguing that the ERISA class action was being brought on behalf of the plan and the plan is not party to any arbitration agreement.

The suit was filed by Howard Prossnitz, Esq., and Shoham Solouki, Esq., of Solouki Savoy, LLP.

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