Skip to main content

You are here


Stable Fund Focus in Another Excessive Fee Suit


The latest excessive fee suit targets “wildly excessive compensation,” an allegedly imprudent stable value offering, and the unmonitored use of “float” income. 

More specifically, the participant-plaintiffs of Miami, Florida-based Lennar Corp. are raising issues with the recordkeeping/administrative fees (“wildly excessive compensation”) paid by the plan, the prudence of retaining Prudential’s stable value fund, and the use of float income by Prudential (the plan’s recordkeeper). 

The lawsuit, filed in the U.S. District Court for the Southern District of Florida (Catenac v. Lennar Corp., S.D. Fla., No. 1:22-cv-23232, complaint 10/5/22), is directed at a plan with approximately $1.2 billion in assets and nearly 13,000 participants. The participant-plaintiffs are represented here by Morgan & Morgan PA.   

Three Ways

The suit claims that the fiduciary defendants violated ERISA’s duty of prudence in three ways. First, they claim that they caused the plan and its participants to pay Prudential excessive and unreasonable fees for administrative services—more than triple the market rate for administrative services, they claim—which the suit says caused the plan losses of at least $450,000 per year during the relevant time period. 

Second, that they selected and retained the Prudential Stable Value Fund, which the suit maintains “consistently underperformed industry benchmarks, stable value funds offered by other investment companies, and ‘virtually identical stable value funds offered by Prudential to other retirement plans.’”  Moreover, the suit alleges that they “allowed Prudential to steer Plan participants into the imprudent Prudential Stable Value Fund by allocating Plan participant money into the Prudential Stable Value Fund when Plan participants did not direct their money to be invested elsewhere.” 

As a result, the suit claims that as of Dec. 31, 2020, there was $206,417,339 invested in that fund, and that “most Plan participants invested in the Prudential Stable Value Fund lost money relative to inflation,” though the suit claims that Prudential was paid “at least $5,000,000 per year during the relevant time period for investment in the Prudential Stable Value Fund.” 

The suit alleges that the plan fiduciaries “never undertook any reasonable investigation into the performance of the Prudential Stable Value Fund,” and never took any prudent measures to discover the actual compensation Prudential was pocketing from the Plan via the Prudential Stable Value Fund.  As a result, the plaintiffs claim that not only have Plan participants been directly paying excessive fees to Prudential for administrative services, but Prudential has also been receiving “wildly excessive compensation through the massive investment in its stable value fund”—which the suit claims caused Plan losses of at least $4,000,000 per year during the relevant time period.

Float ‘Notes’

Third and finally, the suit notes that whenever a Plan participant deposits or withdraws money from his/her Plan account, the money is transferred to a clearing account owned by Prudential—where it sits for several days until eventually the money is directed to wherever Plan participants initially requested. “Prudential invests and earns income on the Plan participant money while it is in its clearing account,” and the suit claims that the plan fiduciaries agreed that Prudential could keep all of the income and interest earned on Plan participant money while it is in Prudential’s account. While the suit notes that there is nothing per se imprudent about this practice (“float”) they note that the defendant “never monitored, tracked, negotiated, or factored the amount of float income…”—in essence allowing Prudential to “make money with Plan participant money without any corresponding benefit”—which the suit claims resulted in plan losses of roughly $200,000 per year.”

In essence, the suit claims that participant accounts suffered losses because each Plaintiffs’ account was assessed an excessive amount for administrative fees, which they say would not have been incurred had Defendant discharged its fiduciary duties to the Plan and reduced those fees to a reasonable level. 

Moreover, it claims that participants suffered financial harm as a result of Defendant’s “inclusion of the imprudent Prudential Stable Value Fund and deprived Plan participants of the opportunity to invest in a prudent stable value fund and to grow their retirement savings by investing in a prudent stable value fund with reasonable fees”—and that “all participants continue to be harmed by the ongoing inclusion of Defendant’s fiduciary breaches.”

Will the court be persuaded? We shall see.