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Revenue-Sharing Suit Alleges Much, Specifies Little

Another week, another revenue-sharing lawsuit — this one seeking class-action status against a provider for revenue sharing payments that it claims “bear absolutely no relationship to the cost or value of any such services.”

The suit, filed Jan. 14 in the U.S. District Court for the District of Colorado, is a bit skimpy on specifics, other than to claim that the defendant, Empower Retirement, “literally has lined its pockets with at least tens of millions of dollars in revenue sharing payments by and through self-dealing, other prohibited transactions and breaches of its fiduciary duties.”

The plaintiff, Wahan Krikorian, a participant in the TPS Parking Management LLC 401(k) Plan, seeks to represent a class of “thousands” of 401(k) investors. The suit labels as “kickback payments” and part of a “pay-to-play scheme” revenue-sharing payments that Empower Retirement received from mutual funds “in return for providing the mutual funds with access to its retirement plan customers, including its 401(k) plan customers.”

The revenue sharing payments in question range from 25 basis points of the total assets of the plans to what the suit claims are “substantially greater revenue sharing payments.”

The suit claims that Great-West/Empower “deceptively characterized” the amounts of the revenue sharing payments as service fees and reimbursements, while “those services by which mutual funds may incidentally benefit are actually ones that Empower Retirement had historically provided to the Plans as a necessary part of its business in return for the fees directly collected by it, and these fees did not change as a result of revenue sharing or based upon the percentage or the magnitude of a plan’s investments in the mutual fund.”

Moreover, the suit claims — albeit without any citation of specifics — that Empower Retirement’s primary criterion for inclusion of a mutual fund on its menu of funds “is the amount of revenue sharing payments or other compensation that the mutual fund is willing to pay Empower Retirement, and this criterion trumps the appropriateness of the investment and/or the size of fees and costs that the Plans (and their participants) will be required to pay.”

Whether or not anything will come of this particular set of allegations is anyone’s guess.

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