Excessive-Fee Suit Targets Checksmart's $25M 401(k) Plan

Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...

By Carmen Castro-Pagan

July 15 — A participant in Checksmart Financial LLC's 401(k) plan sued the loan servicing company for allegedly breaching its ERISA fiduciary duties by allowing excessive administrative fees and imprudent investment options in the company's plan ( Bernaola v. Checksmart Financial LLC , S.D. Ohio, No. 2:16-cv-00684, 7/14/16 ).

The lawsuit, filed July 14 in the U.S. District Court for the Southern District of Ohio, targets a plan with $25 million in assets and more than 1,700 participants. Excessive-fee litigation has usually involved larger plans with hundreds of millions of dollars in assets.

This is the second time in two months that a smaller plan was targeted for its high administrative fees. In May, a similar lawsuit involving a plan with $9 million in assets was filed, prompting some in the industry to question whether widespread litigation against plans of that size would ensue. However, in June that lawsuit was dismissed, at the participant's request.

Enrique Bernaola, individually and on behalf of the plan, sued his employer Checksmart, the plan fiduciaries and the plan's financial advisers under the Employee Retirement Income Security Act. He alleges that the fiduciaries failed in their duty to ensure that the fees and expenses of the plan were fair and reasonable.

Preselected Option Cited

Bernaola points to the preselected investment option offered by the plan to its participants. This option is intended for participants who prefer to have someone else manage their investments.

Bernaola alleges that because of that investment option, the plan has paid excessive fees over the past six years for “extremely underwhelming performance.”

The expenses have been "grossly excessive" because the investment options made available to the participants have been focused on "expensive and unsuitable actively-managed mutual funds without an adequate or appropriate number of passively managed and less expensive mutual fund investment options," the complaint said.

According to the complaint, the S&P 500 index mutual funds included in the plan charged an expense ratio of 60 basis points, while less expensive funds, such as Vanguard, weren't included in the plan.

Checksmart told Bloomberg BNA July 15 that it hasn't been served with the complaint.

Goldenberg Schneider LPA represents Bernaola.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.