Aon Hewitt Sued Over Fee Scheme in Caterpillar’s 401(k) Plan

By Carmen Castro-Pagan

Aon Hewitt Financial Advisors LLC is the latest retirement services company accused of violating ERISA by entering into a fee-sharing agreement with online investment adviser Financial Engines Inc. ( Scott v. Aon Hewitt Financial Advisors LLC , N.D. Ill., No. 1:17-cv-00679, complaint filed 1/27/17 ).

Aon Hewitt devised an arrangement with Financial Engines for investment advice services that resulted in collecting unreasonable and excessive fees at the expense of Caterpillar Inc.'s 401(k) plan participants, according to a lawsuit filed Jan. 27 in the U.S. District Court for the Northern District of Illinois. The lawsuit seeks class treatment for thousands of participants. Aon Hewitt and its subsidiaries engaged in a kickback scheme with Financial Engines that resulted in millions of dollars in plan losses in violation of the Employee Retirement Income Security Act, the complaint alleges.

The lawsuit comes days after rumors that Aon Plc is in talks to sell its employee benefits outsourcing unit, which includes Aon Hewitt and other subsidiaries, to private equity investment firm Clayton Dubilier & Rice. A final announcement is expected next month.

This is the fourth lawsuit to target the fee arrangement for services provided by a computer-based investment advice program, also known as robo-advisers. Similar accusations involving the fee-arrangement schemes between record keepers and Financial Engines have triggered lawsuits against Xerox HR Solutions LLC, Fidelity Management Trust Co. and Voya Financial Inc. Despite having been named a plan fiduciary in these lawsuits, Financial Engines hasn’t been named a defendant in any of them.

Financial Engines delivers investment advice and financial planning to more than 9 million people through more than 700 large employers.

Alleged Kickback Scheme

Prior to 2014, Aon Hewitt had a direct agreement with Financial Engines to provide investment advice to participants in Caterpillar’s retirement plan. The fee for those services was significantly higher because Aon Hewitt required Financial Engines to kick back a significant percentage of the fees charged by the investment adviser, the lawsuit alleges.

In 2014, the business arrangement between Aon Hewitt and Financial Engines was “restructured and re-branded” so that another Aon Hewitt subsidiary directly charged to participants’ accounts the fees for those services, the complaint alleges. This re-branding was “cosmetic” and its only reason was to conceal the illegal kickback, the lawsuit alleges.

Aon Hewitt was receiving 25 percent of the advice fee paid by participants and between 20 percent and 25 percent of the managed account fee paid to Financial Engines, the complaint alleges.

By having the plan sponsor “hire” an Aon Hewitt subsidiary in lieu of Financial Engines and then having that subsidiary enter into a sub-advisory agreement with the investment adviser in which Financial Engines did all the relevant work for the participants, Aon Hewitt was no longer required to report the fees it received from Financial Engines, the lawsuit alleges.

Aon Hewitt has “an unwavering commitment to fee transparency and unbiased retirement and financial wellness solutions,” MacKenzie Lucas, Aon Hewitt's external communications director told Bloomberg BNA Jan. 30. The company's model “has always been and will continue to be fully transparent about all sources of revenue and fees we receive,” Lucas added.

Massey & Gail LLP, Berger & Montague PC and Schneider Wallace Cottrell Konecky Wotkyns LLP represent the proposed class.

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

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