Xerox HR Sued Over 401(k) Fee Deal With Robo-Adviser

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By Carmen Castro-Pagan

Nov. 10 — Three Ford Motor Co. workers accused Xerox HR Solutions Inc. of breaching its ERISA fiduciary duties by entering into a fee-sharing agreement with investment adviser Financial Engines Inc. that resulted in payment of excessive fees from the workers’ $14 billion retirement savings plan ( Chendes v. Xerox HR Sols. LLC , E.D. Mich., No. 2:16-cv-13980, complaint filed 11/9/16 ).

The lawsuit, filed Nov. 9 in federal court in Michigan, seeks class treatment for thousands of plan participants for which Xerox provided record-keeping services and for which FE served as investment adviser. The workers allege that Xerox HR violated the Employee Retirement Income Security Act by entering a “pay to play” scheme that wrongfully inflated the price of professional investment advice services that were critical to the successful management of the workers’ retirement savings.

This is the third lawsuit to target the fee arrangement of services provided by a computer-based investment advice program, also known as robo-adviser. Similar accusations involving the fee arrangement plan record-keepers have entered with FE have triggered lawsuits against Fidelity Management Trust Co. and Voya Financial Inc. Despite having been named a plan fiduciary in these lawsuits, FE hasn’t been named a defendant in any of them.

Other record-keeper companies, including Wells Fargo & Co., have entered into agreements with FE to offer the adviser’s online retirement planning services. In 2015, FE announced that the collective assets in employer retirement plans offering the company’s advisory services exceeded $1 trillion and that more than 600 companies, including Microsoft, Mondelēz International Inc. and Northrop Grumman, were using its services.

Kickback Scheme

Xerox HR contracted with FE to provide professional investment advice services to participants in the retirement plans serviced by Xerox HR through an agreement that dictated and controlled certain terms and conditions on which FE would provide its services.

Because FE was “interested” in securing an arrangement with Xerox to be the exclusive provider of investment advice to participants in plans administered by Xerox, it was “willing” to charge excessive fees to participants in order to meet Xerox’s demand for a kickback, the complaint said.

Xerox allegedly breached its fiduciary duties by requiring FE to charge excessive fees to plan participants. FE is paying Xerox over 30 percent of the fees it receives from the Ford plans, the complaint said.

Participants in the Ford plans who used FE paid the company more than $5.8 million in 2015, out of which FE paid back more than $1.8 million to Xerox HR, the complaint said. Similar payments have been made each year since 2012, the complaint said.

Xerox HR receives compensation for doing nothing more than providing an electronic mechanism for implementing instructions the participants could implement on their own, the complaint said.

Xerox HR declined to comment.

Schneider Wallace Cottrell Konecky Wotkyns LLP—which also represents participants in lawsuits challenging investment strategies used by plan fiduciaries against Verizon Communications Inc. and CVS Health Corp.—joined Berger & Montague P.C. and Miller Law Firm P.C. to represent the Ford workers.

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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