Small Plan Participant Files Excessive Fee Suit with Big Impact

Another excessive fee suit has been filed by a small plan participant, who’s seeking to represent the interests of what she claims are similarly situated participants in 47,000 other plans.

The suit (Goetz v. Voya Financial, Inc., D. Del., No. 1:17-cv-01289-UNA, complaint filed 9/8/17), brought by plaintiff Sharon Goetz, a participant in the (approximately) $3 million Cornerstone Pediatric Profit Sharing Plan, claims that Voya Financial, and its subsidiaries violated and knowingly participated in violations of ERISA, and is seeking “the return of the undisclosed excessive and unreasonable asset-based fees charged by Voya for recordkeeping and administrative services, and to prevent Voya from charging those excessive fees in the future.”

In addition to alleging that they were overcharged, the plaintiff here alleges that Voya concealed its true fees by “adding Voya’s asset based fees to the operating costs of the various mutual fund options in participant fee disclosures,” charging recordkeeping fees based on assets rather than participant count (“reasonable recordkeepers charge recordkeeping fees for each plan participant, rather than as a percentage of assets”), “increasing the annual operating cost of every mutual fund investment option available to participants in the Cornerstone Plan and other similarly situated plans by 0.67% to 1.80%,” and took advantage of revenue-sharing and collected 12b-1 fees from 19 of the 26 funds offered by the Cornerstone Plan, including 10 of the 12 Voya proprietary funds.

‘Big’ Data?

There might, however, be some issues with the claims raised by plaintiffs here – certainly the calculation of injury. As source for their allegation that the 19 participant plan was overcharged, they cite a 2015 survey by consulting firm NEPC which notes that the median recordkeeping cost of the 113 plans in that survey was $64/participant in 2015, and that – based on that assumption – since the Cornerstone plan paid $30,790 for recordkeeping services, that amounted to $1,466/participant in 2015, when there were 21 participants in the plan. Doing the math, the plaintiff claims that Voya’s fees are “36 times more than the reasonable amount of compensation that should have been charged to the Cornerstone Plan.” However, not mentioned is the fact that the NEPC survey is heavily tilted toward large plans, which would normally be expected to pay less per participant.

Having done some arguably flawed math, the plaintiffs extrapolate to the entire retirement plan universe serviced by Voya (some 47,000 plans), and claim that “based on the asset based fees charged to the Cornerstone Plan, Voya potentially earns over $1 billion a year in excessive compensation at the expense of the individual plans and their participants.”

The suit, filed in the U.S. District Court for the District of Colorado, was filed by three different law firms, including Franklin D. Azar & Associates P.C., which – in addition to filing a similar suit against a $500 million plan earlier this year, has previously held 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.

And which now seems to have found another.

Add Your Comments

5 Comments

  1. Posted September 12, 2017 at 10:30 am | Permalink

    The actual numbers beyond the survey should be uncovered during discovery.

  2. Posted September 12, 2017 at 6:42 pm | Permalink

    The legal community will ultimately be the death of the country.
    Unfortunately the majority of legislators, whether in state houses or in Congress come from the legal community, consequently there will never be tort reform either on the state or national level. The legal community will simply continue to live off their fellow man through frivolous lawsuits.
    Soon we’ll all be treated to these “ambulance chasers” on our local television stations advertising for “disgruntled 401(k) participants”. Sadly, this lawsuit is simply the beginning of many more to come.

  3. Marjorie Taylor
    Posted September 12, 2017 at 10:59 pm | Permalink

    Whether or not their math is valid, and whether or not there are 47,000 “similarly situated” plans, a small plan with 21 participants paying $30,000 in record keeping fees, on $3 million in assets, has excessive fees. If I were in her shoes, I would be ticked off, too. If true, that much is insane. Hardly frivolous.

  4. Kenneth Rogers
    Posted September 13, 2017 at 11:02 am | Permalink

    Whether its frivalous or not, take it up with your employer not VOYA.

  5. Posted September 13, 2017 at 2:46 pm | Permalink

    Although, there is legal precedence (LaRue v.DeWolff, 2008) that the sponsor/employer and all involved with the selection and implementation of the 401k as fiduciaries are personally liable for plan deficiencies, if there was an ERISA 3(38),3(21)advisory assigned to the plan the sponsors may reduce some liability. To the extent that Voya was not disclosing information to the employer or advisor via 408(b)(2) fee reports, I would say that Voya is liable as well.

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