Nemours Foundation Retirement Plan Breach of Duty of Prudence Class Action

The Nemours Foundation offers its employees a retirement plan, the Nemours Foundation Section 403(B) plan. The complaint for this class action alleges that Nemours has breached its fiduciary duty of prudence, by causing the plan to pay excessive administrative fees and by not choosing the investment share classes that have the lowest expenses. According to the complaint, Nemours has violated the Employee Retirement Income Security Act (ERISA).

The class for this action is all persons who were participants in, or beneficiaries of, the plan, at any time between February 1, 2017 and the present.

Under ERISA, fiduciaries of retirement plans are required to act with prudence. According to the complaint, then, Nemours is required to act for the exclusive benefit of the plan in keeping expenses low and making sound choices about the plan’s investment options.

The Nemours plan has more than a billion dollars in assets, which the complaint alleges makes it a mega plan that should be able to “leverag[e] the Plan’s tremendous bargaining power to benefit Plan participants[.]” Instead, the complaint alleges, “Nemours caused the Plan to pay unreasonable and excessive fees.”

How much did the plan pay? According to the complaint, the Department of Labor requires that plan’s annual Form 5500 report reveal this amount, but it shows only a blank space.

Most recordkeepers offer the same services, and the complaint alleges that the market for recordkeeping is very competitive.

Many vendors offer these services for a direct rate, that is, a flat rate per participant per year. The plan’s recordkeeper is Transamerica Retirement Solutions, which the complaint alleges “receives a direct fee of at least $97.10 annually from Plan participants.” A reasonable fee, the complaint claims, should be around $25 per year, making these fees far higher than they should be.

However, according to the complaint, Transamerica also earns indirect fees in two ways. First, the complaint claims it earns fees in “float” on money being added to or withdrawn from the plan, which generally spends two or three days in Transamerica accounts in the process.

Second, the complaint alleges Transamerica earns fees via revenue sharing. “In a revenue sharing arrangement,” the complaint alleges, “the amount of compensation …. Is not based on the actual value of such services … [but] on the amount of assets in the plan, or amount of assets in certain investments in the plan.” “If asset-based fees are not monitored,” the complaint alleges, “the fees skyrocket as more money flows into the Plan.”

As to share classes, the complaint points out that many investment funds offer different share classes with lower expenses to large investors, such as retirement plans. For many of the investments offered by the plan, the complaint alleges, “Nemours selected more expensive share classes than identical less expensive share classes of the same investments. Except for the extra fees, the share classes are/were identical.”

Article Type: Lawsuit
Topic: Employment
Tags: Breach of Fiduciary Duty, ERISA Violations, Investment Share Classes, Record Keeping Expenses, Retirement Plans