Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
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.
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 firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Text of the complaint is at http://www.bloomberglaw.com/public/document/Bernaola_v_Checksmart_Financial_LLC_et_al_Docket_No_216cv00684_SD.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)