Union Retirement Plan Latest Target of 401(k) Fee Litigation

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By Jacklyn Wille

The flurry of litigation over 401(k) plan fees has reached a new frontier: a union retirement plan covering more than 27,000 Teamsters and other union workers.

The proposed class action, filed Nov. 30 in a California federal court, targets the trustees of the Supplemental Income 401(k) Plan, a $921 million union retirement plan based in California. According to the lawsuit, the plan paid excessive fees to its two record keepers and offered expensive, retail share classes of mutual funds when cheaper, institutional share classes were available ( Ybarra v. Bd. of Trs. of Supplemental Income Tr. Fund , C.D. Cal., No. 8:17-cv-02091, complaint filed 11/30/17 ).

Many large companies, including Verizon, Chevron, American Airlines, and Anthem, have been accused of similar violations, but class actions challenging the fees of union retirement plans are very rare. In recent years, the litigation effort has trickled from billion-dollar plans of large public companies to more modest plans, including those of Checksmart Financial LLC ($25M), Gucci America Inc. ($97M), and Novitex Enterprise Solutions Inc. ($157M). Elite universities, including Yale, Duke, and Vanderbilt, also have been targeted.

The lawsuit against the union plan is one of a growing number of Employee Retirement Income Security Act cases to argue that plan fiduciaries should be held liable if they offer more expensive retail share classes when identical institutional share classes are available at a lower cost. Federal courts have disagreed over whether this is a viable claim under ERISA. Judges have allowed these claims to proceed against Cornell, Emory, and MIT, while Johns Hopkins, Columbia, and the University of Pennsylvania saw these claims dismissed.

In September, a long-running class action against Edison International forced the company to pay more than $13 million for retirement plan violations, including its decision to offer retail share classes.

A representative for the union plan declined to offer an immediate comment on the lawsuit.

The lawsuit was filed in the U.S. District Court for the Central District of California by Frank Sims & Stolper LLP and Franklin D. Azar & Associates, the latter of which is a personal injury law firm that specializes in motor vehicle accidents, defective products, and slip-and-fall accidents, according to its website. This is at least the fourth time the Colorado-based firm has filed an ERISA class action involving alleged mismanagement of retirement savings.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

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

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