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Starwood Hotels & Resorts Worldwide Inc. is the latest company accused of breaching its fiduciary duties by layering up its 401(k) plan with high-priced, poorly performing investment options ( Creamer v. Starwood Hotels & Resorts Worldwide Inc. , C.D. Cal., No. 2:16-cv-09321, complaint filed 12/16/16 ).
The lawsuit, filed Dec. 16 in federal court in California, seeks class treatment for more than 40,000 participants. Starwood, one of the world’s largest hotel companies with upscale brands such as Westin and Sheraton, failed to ensure that fees charged to participants were reasonable, according to the lawsuit.
Participants who invested in index funds paid seven times more than what a reasonable fee would be, the complaint said. It also limited the participants’ ability to invest in stable-value funds by not including one as an investment option, an action that allegedly cost participants $18 million.
Chevron Corp. faced similar accusations earlier this year when employees challenged several aspects of the company’s 401(k) plan, such as the inclusion of a money-market fund instead of a stable-value fund. A judge in California dismissed the lawsuit in August. Since then, the employees have filed an amended complaint that is currently being challenged by the company.
Starwood should have used the $1.2 billion in plan assets as bargaining power to obtain and maintain low fees, two former workers who identified themselves as not being “sophisticated investors” alleged in the lawsuit. The lawsuit seeks to recover more than $25 million in alleged losses suffered by participants due to excessive fees and Starwood’s investment strategy.
The workers allege that Starwood engaged in revenue sharing with certain investment funds included in the plan to the detriment of participants. The company also failed to follow explicit investment instructions of participants, the lawsuit said.
Participants have paid $4 million in excessive fees over six years due to Starwood’s decision to invest in BlackRock Life Path Index funds instead of choosing a similar, less expensive option such as the Vanguard Institutional Index Fund Institutional Shares, the complaint said.
The workers also allege that after the U.S. Supreme Court decision in Tibble v. Edison International Inc., 135 S.Ct. 1823 (2015)—which held that fiduciaries had an ongoing duty to monitor investments—Starwood cut in half the fees of its fund offerings. However, they claim that if this action would have been done earlier, participants wouldn’t have paid $20 million in excessive fees.
Starwood didn’t immediately respond to Bloomberg BNA’s request for comment.
Solouki Savoy LLP and Law Offices of Howard Prossnitz represent the proposed class.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Charles_et_al_v_Starwood_Hotels__Resorts_Worldwide_Inc_Docket_No_.
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