Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Nordstrom Inc. is the latest large company accused of violating federal benefits law by allegedly selecting and retaining high-cost investment options in its $2.8 billion 401(k) plan when lower-cost options were available.
Nordstrom allowed unreasonable, excessive fees to be charged to its plan participants, failed to use lower-cost investment vehicles, and made inadequate disclosures, according to a lawsuit filed Nov. 6 in federal court in California ( McCorvey v. Nordstrom, Inc. , C.D. Cal., No. 2:17-cv-08108, complaint filed 11/6/17 ).
If the plan had opted to include Vanguard target date funds instead of the target date funds it included, it could have cut expenses by $3.6 million per year, or nearly $22 million over the past six years, the lawsuit said. If the plan had changed other parts of its investment lineup for similarly available Vanguard funds, it would have saved $24 million over the past six years, the lawsuit said.
Nordstrom failed to consider low-cost investment options for its plan, including separate accounts and collective investment trusts. The fashion retailer also failed to disclose to participants the specific dollar amount it charged them for administration expenses, the lawsuit said.
Lawsuits under the Employee Retirement Income Security Act over excessive fees in 401(k) plans don’t seem to be slowing down. In the past year, almost two dozen lawsuits challenging alleged high fees and imprudent investments in workers’ retirement plans have been filed. General Electric has been sued twice in recent months. Other companies that have been recently sued include Gucci America, Novitex Enterprise Solutions, Pioneer Natural Resources, and Starwood Hotels.
The general trend among large 401(k) plans over the past decade has been for administrative fees to be reduced in half, but Nordstrom fees actually went up from $3.8 million in 2011 to $4.7 million in 2016, the lawsuit said.
Attorneys and industry professionals may want to follow the early developments in this case as it could involve issues of mandatory arbitration. Nordstrom may contend that this class action is precluded by its dispute resolution program that requires employees to arbitrate various matters, the lawsuit said. However, the participant may defend against such an argument by relying on a recent decision by a federal judge in California, which held that the University of Southern California couldn’t force its employees to arbitrate their ERISA claims.
The participant who filed the Nordstrom lawsuit seeks class treatment for more than 50,000 individuals.
Nordstrom declined Bloomberg Law’s request for comment.
Solouki Savoy LLP and Howard B. Prossnitz represent the participant.
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