An increasingly familiar name has filed suit on behalf of participants in a $500 million plan.
The latest—Aegis Media Americas Inc.—has been charged by three former participants (Stacey Parks Kennedy, Angela Bozell and Brittney Williams) of the BenefitsPlus 401(k) Profit Sharing Plan. In the suit (Kennedy v. Aegis Media Ams., Inc., S.D.N.Y., No. 1:20-cv-03624, complaint 5/8/20), filed in the Southern District of New York, argue, as many of the excessive fee suits do, that the plan fiduciaries failed to leverage the plan’s size ($540 million at year-end 2018) to provide better (i.e., less expensive) fund choices, and that they “…did not try to reduce the Plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the Plan to ensure it was prudent.”
As for the fiduciaries here, they did, in 2018 (“four years into the Class Period”), make changes to certain Plan investment options, some of which turn out to be the subject of this lawsuit. However, the plaintiffs allege that those “changes were far too little and too late as the damages suffered by Plan participants to that point had already been baked in.”
As for the time period prior to that, the suit claims that “the majority of funds in the Plan (at least 13 out of 21 or more than 60%) were much more expensive than comparable funds found in similarly sized plans (plans having between $250m and $500m in assets).” In fact, they claim that the expense ratios for funds in the Plan “in some cases were up to 82% (in the case of the JHancock Disciplined Value R4) above the median expense ratios in the same category….
“There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the suit argues, stating that “the Plan did not receive any additional services or benefits based on its use of more expensive share classes; the only consequence was higher costs for Plan participants.” Of which there are about 11,775.
Reasonable Inferences
Now, these plaintiffs acknowledge that, “having never managed a large 401(k) plan such as the Plan, Plaintiffs lacked actual knowledge of reasonable fee levels and prudent alternatives available to such plans,” but that “for purposes of this Complaint, Plaintiffs have drawn reasonable inferences regarding these processes based upon (among other things) the facts set forth herein.” Among what they consider to be those “reasonable inferences,” the suit claims that “defendants failed to have a proper system of review in place to ensure that participants in the Plan were being charged appropriate and reasonable fees for the Plan’s investment options. Additionally, Defendants failed to leverage the size of the Plan to negotiate for (1) lower expense ratios for certain investment options maintained and/or added to the Plan during the Class Period and (2) lower recordkeeping and administrative fees.”
The suit also challenges the use of “several actively-managed funds as Plan investment options despite the fact that these funds charged grossly excessive fees compared with comparable or superior alternatives, and despite ample evidence available to a reasonable fiduciary that these funds had become imprudent due to their high costs.” They also claim that “a prudent fiduciary managing a large plan will give serious consideration to the use of separate accounts or collective trusts, and in the majority of cases, will opt to move out of mutual funds.” They argue that, “because of the Plan’s size, it could have reaped considerable cost savings by using collective trusts or separate accounts, but Defendants again failed to investigate this option.”
Here, from 2014 until 2017, the Plan’s Forms 5500 indicate that the Plan paid an average of $63 per participant for recordkeeping and administrative services through both direct and indirect (revenue sharing) compensation to the Plan’s recordkeeper, though for the years ended Dec. 31, 2015 and 2014, recordkeeping and administrative fees were reduced by $201,109 and $107,323, respectively, from forfeited non-vested accounts. Similarly, in 2017 and 2016, recordkeeping and administrative fees were reduced by $197,979 and $72,497 from forfeited non-vested accounts.
Forfeiture ‘Account’
They then note that “because a significant amount of the recordkeeping and administrative fees were paid for by forfeiture accounts there was no need to use revenue sharing from the Plan’s investments to pay for recordkeeping and administrative fees”—but “there is no indication that the Plan’s fiduciaries returned the revenue sharing collected from the Plan’s investments back to the Plan’s participants as they should have.” Moreover, with the offset of the forfeiture accounts, “there is no justification for selecting investment funds that had higher expense ratios if the sole reason was to take advantage of revenue sharing,” they claim.
In sum, the plaintiffs argue that “defendants’ mismanagement of the Plan, to the detriment of participants and beneficiaries, constitutes a breach of the fiduciary duties of prudence and loyalty, in violation of 29 U.S.C. § 1104,” and that their actions “were contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars.”
Counsel ‘Lore’?
As for that familiar name, the suit was filed on behalf of those plaintiffs by the law firm of Capozzi Adler PC. They are the firm that brought suit about a year ago against the BTG International Inc. Profit Sharing 401(k) Plan, earlier this year the $2 billion health technology firm Cerner Corp., and less than a month ago Pharmaceutical Product Development, LLC Retirement Savings Plan.
More ominously, it also happens to be one of the three law firms specifically named in at least one P&C insurer’s policy renewal questionnaire, alongside Schlichter Bogard & Denton LLP and Nichols Kaster PLLP.
