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Nationwide Life Insurance Co. charges 401(k) investors excessive fees for record-keeping services, a new class action complaint alleges ( Schmitt v. Nationwide Life Ins. Co. , S.D. Ohio, No. 2:17-cv-00558, complaint filed 6/27/17 ).
The lawsuit, filed June 27 by a participant in a small 401(k) plan sponsored by Andrus Wagstaff PC, says Nationwide’s practice of charging a flat, 1 percent fee for administrative services allowed the company to collect fees that were nearly 10 times the median fee throughout the industry.
According to the complaint, Nationwide at one point received $625 per participant, per year, for servicing a 401(k) plan with fewer than 30 participants. A reasonable fee would have been closer to $64 per participant, based on a recent survey of the 401(k) plan industry, the complaint alleges.
This isn’t the first proposed class action to challenge Nationwide’s 401(k) practices under the Employee Retirement Income Security Act. In 2014, Nationwide agreed to pay $140 million to end more than a decade of litigation over the company’s collection of revenue-sharing payments from mutual funds that it selected as investment options for its 401(k) plan clients.
This new lawsuit argues that record-keeping services for qualified retirement plans are “essentially fixed and largely automated.” The cost of providing record-keeping services varies based on the number of plan participants, rather than the amount of plan assets, the lawsuit contends. Because of this, “responsible recordkeepers” charge per-participant fees instead of the asset-based fees that allow Nationwide to reap excessive profits, the lawsuit alleges.
Nationwide is also accused of attempting to conceal the total amount of fees charged for record-keeping services.
The lawsuit was filed in the U.S. District Court for the Southern District of Ohio by Dyer Garofalo Mann & Schultz. It seeks to represent a class of as many as 37,000 retirement plans and 2.4 million individual investors.
Nationwide didn’t immediately respond to Bloomberg BNA’s request for comment.
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