Lawsuits Against Smaller Retirement Plans

For the second time in as many months, the plan fiduciaries of a smaller 401(k) plan are being sued for breach of fiduciary duties, under the Employee Retirement Income Security Act of 1974 (ERISA). As the plan’s investment advisor, a loan servicing company by the name of Cetera Advisor Networks, is named as a co-defendant in the suit, justified by the plaintiffs in their assertion of Cetera’s “co-fiduciary” status.  

Bernaola v. Checksmart Financial LLC, (S.D. Ohio, No. 2:16-cv-00684, 7/14/16) alleges that fiduciaries of the Checksmart Financial LLC’s 401(k) plan allowed the charge of “grossly excessive” fees to plan participants, while also utilizing funds in the plan that delivered “extremely underwhelming performance” during a six-year period. The Checksmart plan is considered a “smaller” plan, with roughly $25 million in assets and more than 1,700 participants. 

In addition to attacking the plan’s average fund expense ratio, the plaintiffs are also citing the plan’s primary use of active versus passive funds, saying actively managed and “extremely expensive” mutual funds “rarely add value or can be justified as investment options, especially in the absence of a broad array of passively managed index funds being also made available,” according to the complaint. 

Damberg v. LaMettry’s Collision, Inc. was voluntarily dismissed. Our opinion is the pleadings and allegations in Bernaola v. Checksmart Financial LLC are extremely poorly thought out and plead, and the case will likely be summarily dismissed. However, what is important to note with these suits is that small and mid-sized plans are now coming into the focus of the Plaintiff Bar. In the past, this type of excessive-fee litigation has generally been aimed at larger plans with hundreds of millions of dollars in assets, but may become increasingly more common as awareness of fees and fund selection grows, thanks in part to new disclosure regulations from the Department of Labor. 

If you have questions about your company’s retirement plan, please call us toll free at (800) 929-1001. 

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