Insperity Must Face Lawsuit Over 401(k) Fees, Funds

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

A lawsuit accusing human resources provider Insperity Inc. of loading its 401(k) plan with high-fee investment funds and paying itself excessive record-keeping fees is moving forward ( Pledger v. Reliance Tr. Co. , N.D. Ga., No. 1:15-cv-04444, 3/7/17 ).

The eight-count lawsuit attacks the management of Insperity’s $2 billion 401(k) plan, which participants claim offered expensive and poorly performing investment options and paid excessive fees to a record keeper affiliated with the company. A federal judge on March 7 refused to dismiss most of the claims against Insperity and Reliance Trust Co., including the accusation that Insperity filled the 401(k) plan with untested target-date funds that earned fees for the company.

At least 19 financial companies, including Morgan Stanley, Wells Fargo and Charles Schwab Corp., have been sued in the past three years over the in-house investment products in their 401(k) plans, and many lawsuits have survived motions to dismiss. This decision marks the third time a judge has allowed plan participants to move forward with claims that a plan was used as “seed money” for untested proprietary investment funds. Similar claims are pending against Putnam Investments and Allianz.

“The recent trend has been for courts to dismiss complaints that seek merely to second guess fiduciaries, unless there is a suggestion that the fiduciaries acted out of self interest,” Brian D. Netter, an employee benefits lawyer and partner with Mayer Brown LLP in Washington, told Bloomberg BNA. “This case mostly follows that trend.”

Even so, Netter found it “particularly significant” that the judge dismissed claims challenging the Insperity plan’s inclusion of a money market fund in lieu of a stable value fund. Several recent lawsuits have argued— so far, unsuccessfully—that the low return on money market funds makes them unwise options for 401(k) plans.

“There have been repeated efforts by the plaintiffs’ bar to challenge money market funds, even though such funds are a fixture in the marketplace,” he said. “ERISA permits a lawsuit where fiduciaries are out of step with their peers, but it doesn’t create a judicial forum for reforming industry practices.”

Netter isn’t involved in this litigation.

Flood of Allegations

In addition to challenging the in-house target date funds and the decision to offer a money market fund, the Insperity plan participants also challenged the plan’s record-keeping fees. They accused the company of profiting from the plan by using an affiliated record keeper that charged excessive fees.

Although the judge said it was too late to challenge the initial decision to use an affiliated record keeper, he otherwise allowed the record-keeping fee claim to proceed.

The judge also refused to dismiss claims that the defendants should have considered less-expensive investment options for the plan. Because the allegations of high fees were tied to accusations of self-interested decision making, the judge deemed these claims valid.

No Disgorgement

Despite these losses, Insperity and Reliance scored one big victory in this ruling: the dismissal of the participants’ request for disgorgement. The disgorgement remedy, which seeks to recover the profits defendants earned through the disputed practices, can greatly increase the amount of money at stake in a lawsuit.

Judges have disagreed over whether disgorgement is appropriate in cases challenging 401(k) plan fees. Allianz and Deutsche Bank have beaten disgorgement claims, while American Century and Putnam Investments have failed to get disgorgement claims dismissed quickly.

In this case, the disgorgement claim failed because the Insperity plan participants failed to identify any specific funds or property held by the defendants that they could seek to disgorge.

Judge Mark H. Cohen of the U.S. District Court for the Northern District of Georgia wrote the decision.

Alston & Bird LLP represented Insperity. O’Melveny & Myers and Bryan Cave represented Reliance Trust Co. Schlichter Bogard & Denton LLP and Swift Currie McGhee & Hiers represented the plan participants.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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