Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Delta Air Lines Inc. is accused in a new lawsuit of selecting high-priced, poorly performing and duplicative investment options in the company’s 401(k) plan despite the availability of less-expensive alternatives ( Johnson v. Delta Air Lines Inc. , D. Del., No. 1:16-cv-01275, complaint filed 12/20/16 ).
The lawsuit, filed Dec. 20 in federal court in Delaware, attacks Delta’s decision before 2011 to offer at least 200 investment options in its retirement plan. These options were “duplicative” and allegedly “added nothing but confusion to the set of options available to participants,” the lawsuit said. The plan wasted tens of millions of dollars through the “payment of unreasonable, excessive and unnecessary fees, as well as the persistent underperformance of these ill-chosen investments,” the participants alleged.
The complaint is without merit and the company will defend vigorously, Brian Kruse, Delta's spokesman told Bloomberg BNA Dec. 21 via e-mail. The plan investment options and fees undergo regular review and the best interest of the employees and participants are the main focus of this work, Kruse said. Delta offers a “well-diversified, low fee investment line up in the plans,” he added.
Delta is the latest among a number of companies, including Starwood Hotels & Resorts Worldwide Inc., American Airlines Inc., Chevron Corp., and Verizon Communications Inc., that have been accused of mismanaging their employees’ retirement savings.
This is not the first time Delta employees have challenged the fees charged in their retirement plan. In May, employees accused Fidelity Management Trust Co.—the plan’s record keeper—of violating the Employee Retirement Income Security Act by receiving unreasonable compensation through its brokerage window feature and engaging in a kickback scheme with online investment advisory company Financial Engines Advisors LLC. In that lawsuit, Delta wasn’t named a defendant. In the new lawsuit, although the participants challenged the fees paid to Fidelity, they didn’t name the financial company as a defendant.
Allegations about having too many options in a retirement plan portfolio resemble those recently made against 12 prominent universities, including Yale, New York University, the Massachusetts Institute of Technology, Duke, Vanderbilt, Cornell and Columbia. “Including investment options that are, at best, unnecessary will likely only serve to mislead and confuse plan participants, who are generally not sophisticated investment professionals,” the complaint against Delta said.
The more options a plan offers, the more fees it pays, the complaint said. In the case of the Delta plan, an “overwhelming array of options” didn’t benefit the participants in any way, it said.
Participants allege that Delta failed to monitor the investment options it offered and allowed numerous poorly performing options to remain in the plan’s portfolio. As a result, Delta “drained millions of dollars” from participants’ retirement savings through fees, expenses and underperformance, the lawsuit said.
As to Fidelity, the lawsuit said that the plan paid approximately $3.5 million in direct compensation to the financial company. In addition, the plan also paid Fidelity excessive indirect compensation through revenue sharing, the lawsuit said.
The lawsuit seeks class treatment for more than 83,000 participants in Delta’s $5.7 billion plan.
Friedlander & Gorris P.A. and Tacopina & Seigel represent the proposed class.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at email@example.com
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Johnson_et_al_v_Delta_Air_Lines_Inc_et_al_Docket_No_116cv01275_D_.
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