401(k) lawsuit alleges excessive adviser compensation

A comprehensive lawsuit filed this week against large AAA member groups alleges that plan participants overpaid for years for investments and services, including compensation to Wells Fargo and Captrust.

In an 81-page class-action complaint filed Tuesday in U.S. District Court in the Western District of North Carolina, plaintiff law firm Fitzgerald Litigation alleged that AAA Carolina, The Auto Club Insurance Association and The Auto Club Group breached their fiduciary duties to plan participants and engaged in prohibited transactions.

“Defendants inexplicably flooded the plan with extremely expensive, often underperforming investment options for participants to choose from, all while they had the ability to obtain much cheaper and more lucrative investment options … aside from a small change in direction in or around 2018,” the complaint read.

The defendants did not appear to solicit competitive bids for record-keeping services and allowed funds with high revenue-sharing components to compensate service providers, the plaintiffs stated. Some of the biggest investment options on the plan menu were retail share classes of funds rather than readily available institutional ones, according to the complaint.

The suit focuses on fees within the AAA Carolina’s plan, which early this year was merged with the Auto Club Group Tax Deferred Saving Plan when the latter firm acquired the former.

“At that moment, even though the acquiring company (Auto Club Group) had a plan about 15 times larger, it had lower administrative costs than AAA Carolina’s plan,” the complaint read.

The AAA Carolina plan hired Captrust as an investment fiduciary in 2009, with that firm receiving about $11,000 in compensation that year, according to the complaint. In 2014, the firm was hired again to help select and monitor investments, and that year it received nearly $300,000, the plaintiffs stated.

In 2015, the plan switched to Wells Fargo for investment advice, with that firm receiving less than $28,000. However, Wells’ compensation for that service went up to $75,000 a year later, before dropping to $63,000 in 2017 and then being set at a flat rate of $56,000 for 2018 and 2019, according to the complaint.

“Plaintiffs cannot solve the mystery as to how these direct trust payments can vary so much year to year, when fiduciaries like Captrust and Wells Fargo (advisor) are prohibited from ‘setting their own compensation,’” the plaintiffs wrote.

Additionally, Wells Fargo’s record-keeping compensation was asset-based, and its compensation for that service increased from $70 per participants in 2014 to $196 per participant in 2019, according to the complaint.

Captrust and Wells Fargo are not parties in the lawsuit.

A spokesperson for AAA Carolina said in an email that the company is reviewing the complaint.


Berkshire Hathaway-owned MidAmerican Energy Co. has won a lawsuit filed over its 401(k) plan, recently filed court documents show.

The company was sued in March in a case brought by law firm Capozzi Adler, which similarly targeted numerous employers last year. The lawsuit alleged that MidAmerican breached its fiduciary duty by allowing unreasonably high record-keeping and investment management fees within the plan.

The suit focused on four funds on the plan’s menu: the Oakmark Equity and Income, Pimco Total Return and Dodge & Cox Stock and International Stock funds. There were lower-fee alternatives from other fund managers that the plan should have considered, and some funds on the plan menu should have been replaced with better-performing ones, the plaintiffs alleged.

On July 2, the court found that the plaintiffs in the proposed class-action case “failed to allege facts establishing a meaningful benchmark for assessing the performance of the challenged funds.” the order read.

“The United States Court of Appeals for the Eighth Circuit requires plaintiffs to identify a comparable fund with a materially similar style, structure and goal,” the order read.

The case was filed in U.S. District Court in the Southern District of Iowa. Law firms Jackson Lewis and Duncan Green represented the defendants.

The post 401(k) lawsuit alleges excessive adviser compensation appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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