Great-West, Empower Targeted in Latest 401(k) Fee Suit

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By Jacklyn Wille

Jan. 15 — Great-West Life & Annuity Insurance Co. is the latest retirement plan service provider to be hit with a class action complaint alleging it charges and collects excessive 401(k) fees.

According to the complaint, filed Jan. 14 in the U.S. District Court for the District of Colorado, Great-West's retirement plan business—branded Empower Retirement—receives kickbacks from the mutual funds it offers to 401(k) plans as part of an impermissible “pay-to-play scheme” that drains money from plan participants' retirement savings.

Great-West also “deceptively characterized” these kickbacks as service fees and reimbursements, even though they bore “absolutely no relationship to the cost or value of any such services,” the complaint alleged.

The complaint, filed by a participant in the TPS Parking Management LLC 401(k) Plan, seeks to represent a class of “thousands” of 401(k) investors. According to the complaint, Great-West services more than 32,000 retirement plans covering more than 7 million participants, and it administers more than $416 billion in assets.

A spokesman for Great-West told Bloomberg BNA that the company believes the suit is without merit and will defend itself vigorously, but declined to comment further.

Litigation Trends

If recent appellate court decisions are any indication, the participants bringing this suit may face an uphill battle in their quest to treat Great-West as a fiduciary under the Employee Retirement Income Security Act. Earlier this month, the U.S. Court of Appeals for the Eighth Circuit became the third federal appellate court to reject efforts to impose fiduciary liability on 401(k) service providers such as Principal Life Insurance Co., American United Life Insurance Co. and John Hancock Life Insurance Co (06 PBD, 1/11/16).

These defendant-friendly rulings have come over the strong objections of the Department of Labor, which filed amicus briefs urging each court to treat the service providers as ERISA fiduciaries. However, the department is currently in the process of finalizing a regulation that is expected to expand the definition of an ERISA fiduciary in a way that could encompass 401(k) service providers in certain circumstances.

The past two months have seen an uptick in 401(k) fee litigation, with class actions filed against Deutsche Bank Americas Holding Corp., Fidelity Management Trust Co., New York Life Insurance Co., Insperity Inc. and Anthem Inc. Prudential Retirement Insurance & Annuity Co. was suedtwice, once by law firm Shepherd Finkelman Miller & Shah LLP, which filed the instant suit against Great-West.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com