Voya Scores Win in ERISA Suit Over Robo-Adviser Fees

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

Voya Financial Inc. and its subsidiaries convinced a federal judge to dismiss a lawsuit by a 401(k) investor who says the company overcharged for investment advice provided by robo-adviser Financial Engines Advisors LLC ( Patrico v. Voya Fin., Inc. , 2017 BL 212065, S.D.N.Y., No. 1:16-cv-07070-LGS, 6/20/17 ).

The investor, a participant in Nestle USA Inc.'s 401(k) plan who filed a proposed class action, can’t use the Employee Retirement Income Security Act to challenge Voya’s fees, a federal judge ruled June 20. That’s because Voya wasn’t acting as an ERISA fiduciary when it negotiated the fees for Financial Engines’ advisory services, the judge said.

This ruling follows the logic of recent appellate court decisions declining to impose fiduciary status on 401(k) service providers, including American United, John Hancock, and Principal.

In the past year, several lawsuits have challenged arrangements between 401(k) providers and Financial Engines, an online financial advisory firm—also known as a “robo-adviser.” Voya, Fidelity, Xerox, and Aon Hewitt are accused of collecting fees from plan participants in exchange for services that are actually performed by Financial Engines. In this case, the investor claims Voya charges participants up to 50 basis points for access to investment advice—the equivalent of $500 on a $100,000 investment—despite providing no services in exchange for this fee.

This decision dismissing ERISA claims against Voya is the first significant ruling in this line of cases. A pending case between Northrop Grumman Corp. and its employees also challenges the fee arrangement between Financial Engines and Aon Hewitt without naming either of those companies as defendants. In January, a federal judge dismissed this claim because the employees who filed suit never alleged that they personally paid for Financial Engines’ services.

In the case against Voya, Judge Lorna G. Schofield of the U.S. District Court for the Southern District of New York dismissed the investor’s fiduciary breach and prohibited transaction claims but gave her permission to file an amended complaint.

Carlton Fields Jorden Burt LLP represents Voya. The investor is represented by Schneider Wallace Cottrell Brayton Konecky LLP and Berger & Montague P.C., a legal team that’s also litigating ERISA cases against TIAA, Charles Schwab Corp., and Washington University in St. Louis.

Voya provides retirement products and services to more than 47,000 institutional clients and nearly 4.5 million individual retirement investors, according to its website. The company announced on June 21 that Jeff Cimini, a veteran of TIAA and Bank of America Merrill Lynch, has been hired to lead Voya’s retirement product organization.

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

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

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