Novitex Sued Over 401(k) Plan Fees, Not First Modest Plan Hit

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 Carmen Castro-Pagan

Novitex Enterprise Solutions Inc. is the latest company to be accused in federal court of letting its 401(k) plan participants be charged excessive record-keeping and administrative fees ( Sandoval v. Novitex Enterprise Solutions LLC , D. Conn., No. 3:17-cv-01573, complaint filed 9/20/17 ).

Novitex and its employee benefits committee failed to monitor the plan’s investment options—including its selection of mutual funds and a stable value fund—to ensure that they were diversified and not excessively priced, according to a lawsuit filed Sept. 20 in the U.S. District Court for the District of Connecticut. Novitex also breached its fiduciary duties under the Employee Retirement Income Security Act by retaining and excessively compensating UBS as the plan’s investment adviser, the complaint alleges.

In addition, the company and the committee allowed the plan to pay Transamerica excessive record-keeping and administrative fees, it says.

The lawsuit is the latest to target a company with a modest 401(k) plan. Complaints previously have been brought against larger companies with jumbo plans with hundreds of millions of dollars in assets, including M&T Bank Corp., American Airlines Inc., Intel Corp., Anthem Inc., Verizon Communications Inc., and Chevron Corp. Since last year, smaller companies have become the main targets in this type of litigation with lawsuits involving auto body repair provider LaMettry’s Collision Inc. and Checksmart Financial LLC. Last week, luxury fashion retailer Gucci America Inc. was sued over the fees associated with its $96.5 million 401(k) plan.

Stamford, Conn.-based Novitex provides cloud-based solutions and data management services to clients worldwide, according to company data on Bloomberg Law. The company’s 401(k) plan had $157 million in assets and more than 10,000 participants as of 2015, according to the lawsuit.

The lawsuit was filed by a current plan participant individually and on behalf of the plan. He seeks to hold Novitex accountable for not disclosing to participants the expenses and risks of the plan’s investment options and for allegedly selecting and retaining “opaque, high-cost, and poor performing investments” instead of other available and more prudent alternative options.

The lawsuit provides details on the fees charged by each mutual fund in the plan and the lower-cost available alternatives. With the exception of two Vanguard funds, all of the plan’s investment options were costly, with expense ratios ranging from 0.69 percent to 1.08 percent, the lawsuit said.

Novitex declined to comment about the lawsuit.

Shepherd Finkelman Miller & Shah represents the participant.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

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

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