Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Feb. 18 — Chevron Corp. is the latest major company to be targeted by a class action challenging the fees associated with its 401(k) plan investments, including fees paid for Vanguard investment products and services.
The lawsuit, filed Feb. 17 by St. Louis-based Schlichter, Bogard & Denton, attacks Chevron's decision to include a Vanguard-sponsored money market fund in its 401(k) plan instead of a lower-cost and better-performing stable value fund. The suit also argues that Chevron should have considered separate accounts, collective trusts and lower-fee versions of the same Vanguard funds it included in the plan.
This is the second class action challenging Vanguard investments that Schlichter has brought in recent months. An earlier suit raises similar claims against Indiana-based health insurer Anthem Inc. (Bell v. Anthem, Inc., Pension Comm. of ATH Holding Co. LLC, S.D. Ind., No. 1:15-cv-02062, complaint filed 12/29/15 ).
Lawsuits challenging 401(k) plan fees and stable value investments have come with increasing frequency in recent months. Companies targeted by these suits include Deutsche Bank Americas Holding Corp., Fidelity Management Trust Co., New York Life Insurance Co., Insperity Inc., Verizon Communications Inc., CVS Health Corp., Massachusetts Mutual Life Insurance Co. and Oracle Corp. Prudential has been sued twice.
A spokeswoman for Chevron told Bloomberg BNA that the company hasn't been served and can't comment on the lawsuit.
According to the complaint, Chevron failed to offer its workers a stable value fund, unlike 80 percent of similar retirement plans and the “vast majority” of large 401(k) plans.
Rather, the complaint alleged that Chevron offered a Vanguard money market fund as the plan's sole conservative investment option aimed at preserving capital. This fund's “microscopically small return” failed to beat the inflation rate during the class period, the complaint alleged.
The decision to offer a money market fund in lieu of a stable value fund cost Chevron workers more than $130 million in retirement savings, the complaint alleged.
The complaint also attacked Chevron's failure to select the lowest-cost share class for several of its investment options, which allegedly cost workers more than $20 million in unnecessary fees.
Chevron chose Vanguard funds that carried fees between 25 percent and 225 percent higher than identical funds available to the plan from Vanguard, the complaint alleged.
The plan's non-Vanguard investments also carried excess fees compared with their institutional share class counterparts, the complaint alleged.
The complaint also argued that Chevron should have considered offering separate accounts instead of the mutual funds held by the plan.
According to the complaint, separate accounts are available to large plans like Chevron's, and can be expected to carry fees one-fourth as high as those associated with mutual funds.
Finally, the complaint took issue with the record-keeping fees Chevron paid to Vanguard and with its decision to retain a poorly performing small cap value fund in the plan.
The complaint was filed in the U.S. District Court for the Northern District of California. The plan participants bringing suit seek to represent a class of more than 40,000 current and former Chevron workers with account balances in the plan.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Charles_E_White_et_al_v_Chevron_Corporation_et_al_Docket_No_316cv.
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