Aon Beats Challenge to 401(k) Robo-Adviser Fees

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Aon Hewitt escaped a proposed class action challenging its fee arrangement with online investment adviser Financial Engines Inc.

The lawsuit, filed on behalf of investors in Caterpillar Inc.'s 401(k) plan, accused Aon Hewitt Financial Advisors and Hewitt Associates of running an illegal kickback scheme with Financial Engines that caused 401(k) investors to pay millions of dollars in excessive and unnecessary fees. A federal judge dismissed the lawsuit on March 19, saying that neither Aon Hewitt entity was a fiduciary under the Employee Retirement Income Security Act with respect to the disputed fees.

Aon plc, once a leading provider of 401(k) and employee benefits services, sold its benefits business to private equity funds affiliated with Blackstone Group for $4.3 billion in 2017. This lawsuit, which was filed two weeks before the sale was announced, seeks to represent “thousands” of 401(k) investors whose plans were serviced by the Aon defendants and Financial Engines.

In the past few years, several lawsuits have challenged arrangements between 401(k) providers and Financial Engines, an online financial advisory firm also known as a “robo-adviser.” The cases have been largely unsuccessful, with judges dismissing claims against Voya Financial, Fidelity, and Xerox. In each case, judges said the defendants weren’t acting as ERISA fiduciaries when they negotiated fees with Financial Engines.

In this case, Magistrate Judge Jeffrey T. Gilbert of the U.S. District Court for the Northern District of Illinois separately analyzed whether the two defendants, Aon Hewitt Financial Advisors and Hewitt Financial Services, were ERISA fiduciaries. Although Aon Hewitt was a fiduciary for certain purposes, neither entity had discretionary control over the fees Caterpillar paid to Financial Engines in connection with its 401(k) plan, Gilbert said.

Gilbert also rejected claims that the defendants engaged in prohibited transactions under ERISA. He gave the 401(k) investor 30 days to file a new complaint.

The investor was represented by Massey & Gail LLP, Berger & Montague PC, and Schneider Wallace Cottrell Konecky LLP. The Aon defendants were represented by Jenner & Block LLP.

The case is Scott v. Aon Hewitt Fin. Advisors, LLC, 2018 BL 92715, N.D. Ill., No. 1:17-cv-00679, order granting motion to dismiss 3/19/18.

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