Allegiant 401(k) Plan Breach of Fiduciary Duty Class Action

The Employee Retirement Income Security Act (ERISA) imposes fiduciary duties on companies and others responsible for employee retirement plans. This class action brings suit against Allegiant Travel Company, claiming it breached its fiduciary duties of loyalty and prudence to the Allegiant 401(k) Retirement Plan.

The class for this action is all persons who were participants or beneficiaries of the plan, at any time between October 17, 2016 and the present.

High fees can have a large impact on retirement savings. The complaint alleges, “The US Department of Labor (‘DOL’) has noted that a 1% higher level of fees over a 35-year period makes a 28% difference in retirement assets at the end of a participant’s career.”

The Allegiant plan is a large one, with more than $370 million in assets and 3,720 participants with account balances.

Its relatively large size gives it bargaining power in the market for plan services, but the complaint alleges that the company did not take advantage of it. “Instead of leveraging the Plan’s tremendous bargaining power to benefit participants and beneficiaries,” the complaint alleges, Allegiant “caused the Plan to pay unreasonable and excessive fees for recordkeeping and other administrative services.”

Retirement plans usually purchase recordkeeping and administrative services in a bundle, generally on a per-participant basis. Plans with many participants can negotiate a lower per-participant fee. The Allegiant plan has both a per-participant fee and a revenue sharing arrangement with its recordkeeper since 2011, Fidelity Investments Institutional.

However, the complaint argues that revenue-sharing arrangements must be closely monitored, as the true costs can be hidden. Revenue sharing costs bear no relation to actual services provided, the complaint alleges, but depend solely on the amount of assets in the plan. The complaint alleges, “If asset-based fees are not monitored, the fees skyrocket as more money flows into the Plan.”

Fiduciaries must therefore understand the total amount earned by the recordkeeper, both directly and indirectly, the complaint alleges, know how much it amounts to on a per-participant basis, and periodically conduct requests for proposals (RFPs), in order to determine if the fees are reasonable.

Because the plan’s assets have “exploded” over the past decade, the complaint claims, the recordkeeper’s revenue-sharing payment to Fidelity has become “excessive and unreasonable.” The complaint alleges that there is nothing to indicate that Allegiant has undertaken any RFPs since 2011.

In addition to this compensation, the complaint says that deposits to and withdrawals from the plan pass through a Fidelity clearing account, with Fidelity earning income on those amounts as well.

A table in the complaint shows the direct recordkeeping compensation for each year in the period for this class action. It then quotes Fidelity’s own evidence in another case that the value of its recordkeeping services were far below what it was charging Allegiant, even if only the direct fees were considered.

The complaint thus claims that Fidelity earned around $200 per participant per year when it should have been earned only around $25.

Article Type: Lawsuit
Topic: Employment
Tags: 401(k) Plans, Breach of Fiduciary Duty, ERISA, Employment Violations, Excessive Fees, Retirement Plans