Litigation over retirement plan fees and investments is already occurring at a fast pace in 2022, with three new lawsuits filed this week against sponsors of multibillion-dollar 401(k)s and 403(b)s.
Law firms Schlichter Bogard & Denton, Capozzi Adler and Sanford Heisler Sharp brought class-action claims against PPL Corp., Mass General Brigham and Milliman Inc., respectively.
In the complaint Wednesday against energy company PPL, plaintiffs for the proposed class allege that the sponsor to the roughly $2.4 billion group of defined-contribution plans breached its fiduciary duty by selecting and retaining the Northern Trust Focus Funds. Those products, a collective investment trust target-date series, are at the center of several other cases brought against plan sponsors by different law firms. Northern Trust is not named as a defendant in the recent case against PPL, but it was separately sued in 2020 over those investments.
“Instead of acting diligently and prudently, defendants retained a suite of unproven collective investment trust target date funds as investment options in the plan,” the complaint from Schlichter read. “The Focus Funds suffered from significant and ongoing quantitative deficiencies and managerial turnover resulting in massive underperformance relative to that of well-established, prudently managed, comparable target date funds that were available to the plan.”
The CIT series, which launched in 2009, used hypothetical figures for past performance going back 10 years, the plaintiffs stated. After that, the series had a history of underperforming industry benchmarks and had a high turnover rate, they said.
They cited products from Vanguard, TIAA and T. Rowe Price as preferable alternatives that would have resulted in higher net returns for the plans’ participants to the tune of $34 million to $55 million.
Additionally, a plan of that size could have opted for lower-cost share classes, the plaintiffs allege. In the case of Focus Funds, the plan included a share class with net fees of 7 basis points, although there were different share classes available with fees of 5 bps and 2 bps, according to the complaint.
That case was filed in U.S. District Court in Pennsylvania.
PPL did not respond to a request for comment by deadline.
MASS GENERAL BRIGHAM
The Massachusetts health care system was sued Thursday in U.S. District Court by several former employees, represented by law firms Capozzi Adler and the Law Offices of Jeffrey Hellman.
The litigators allege that the sponsor to the $10.2 billion 403(b) breached its fiduciary duties by selecting several investment options with excessive fees and by agreeing to record-keeping services that cost its employees more than was necessary.
They pointed to seven TIAA investments representing $1.3 billion in plan assets that they claim were 10 bps higher in fees “than required by the fund provider.”
Further, participants paid annual record-keeping fees ranging from $54 to $76 per person between 2016 and 2020, while some comparably sized plans had arrangements as low as $21 per person, according to the complaint.
The law firms “do not have actual knowledge of the specifics of defendants’ decision-making process with respect to the plan, including defendants’ processes … for selecting, monitoring and removing plan investments or monitoring record-keeping and administration costs, because this information is solely within the possession of defendants prior to discovery,” the complaint read.
They claimed that the higher-than-necessary fee arrangements are evidence that the health care system did not engage in a prudent process.
Currently, the Supreme Court is considering arguments in a case against Northwestern University, and its ruling could determine whether the mere existence of lower-cost options is sufficient for plaintiffs to state a claim.
Mass General Brigham declined to comment on the litigation.
A former Milliman employee sued the company Thursday in U.S. District Court in Washington, alleging it breached its fiduciary duties by selecting target-risk investments for which it served as subadviser.
Beginning in 2013, the risk management, benefits and tech firm included three of the then-new Unified Funds, in aggressive, moderate and conservative varieties. As of 2020, about $250 million of the $1.7 billion Milliman plan’s assets were invested in those funds, according to the complaint.
“During the nine years since their introduction to the plan in 2013, the Unified Funds have significantly underperformed meaningful benchmarks, which include both benchmark indexes … and comparable target risk funds,” the complaint read. “But mere underperformance is not the whole story — the depth and breadth of the underperformance is as jarring as it is incomprehensible.”
Over that time, for example, the Aggressive Fund underperformed one benchmark cumulatively by 62%, and it ranks in the bottom 90th percentile of peer funds, according to the complaint.
Over the past five years, the three funds have performance rankings in the bottom 70% to 90% of comparable funds, the plaintiff stated. And between 2013 and 2015, investment in those funds cost plan participants an estimated $20 million in returns they could have realized through products with stronger performance histories, they wrote.
The single named plaintiff is bringing claims under the Employee Retirement Income Security Act on behalf of all investors of the Unified Funds.
The complaint was brought by law firms Byrnes Keller Cromwell and Sanford Heisler Sharp.
A representative from Milliman said that the firm doesn’t comment on ongoing litigation.
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