Xerox Nixes Challenge to Robo-Adviser Fees in Ford 401(k) Plans

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By Carmen Castro-Pagan

Xerox HR Solutions LLC escaped a lawsuit by participants in three Ford Motor Co. 401(k) plans challenging the allegedly excessive fees charged for investment advice provided by robo-adviser Financial Engines Advisors LLC ( Chendes v. Xerox HR Sols., LLC , 2017 BL 375684, E.D. Mich., No. 2:16-cv-13980, motion to dismiss granted 10/19/17 ).

Xerox—which provided administrative and record-keeping services to the Ford plans—didn’t act as an Employee Retirement Income Security Act fiduciary with respect to the compensation it received from Financial Engines, Judge Robert H. Cleland of the U.S. District Court for the Eastern District of Michigan held Oct. 19. Xerox had no discretion over the amount of its own compensation as it relates to the participants and thus wasn’t acting as a fiduciary in collecting fees from Financial Engines, Cleland held.

In addition, Xerox isn’t a fiduciary based on the participants’ theory that it exercised control over the agreement between Ford and Financial Engines—which they claim was a “plan asset"—because the agreement didn’t amount to a “plan asset” under ERISA, Cleland said.

The lawsuit is another setback for plan participants who in the past year have challenged arrangements between 401(k) providers—including Voya Financial, Aon Hewitt Financial Advisors, and Fidelity Management Trust—and Financial Engines, an online financial advisory firm—also known as a “robo-adviser.” So far, federal judges in Massachusetts and New York have sided with Fidelity and Voya by holding that the participants failed to show that the providers exercised fiduciary functions when contracting with Financial Engines.

Despite being at the center of these cases, Financial Engines hasn’t been named a defendant in any of them.

In his ruling, Cleland didn’t entirely reject the participants’ argument that Xerox could be a fiduciary because of the “control” it exercised in its assistance in selecting Financial Engines, which was another plan fiduciary.

Cleland agreed with Xerox that, from the face of the participants’ allegations, it was Ford that ultimately appointed Financial Engines. He noted that the participants seemed to suggest that Xerox was a fiduciary by virtue of its control over the negotiation of terms and conditions between Ford and Financial Engines, because after executing the contract, Financial Engines would still be required to pay Xerox a portion of its fees.

Even though Cleland granted participants leave to replead their claim, he cast doubt on their ability to do so. The court is skeptical that an allegation that doesn’t say that Xerox was directly involved in the Ford-Financial Engines negotiations could give rise to the level of appointment of a fiduciary sufficient to impose liability, he said.

The Miller Law Firm P.C., Berger & Montague P.C., and Schneider Wallace Cottrell Konecky Wotkyns LLP represent the participants. Miller Canfield Paddock & Stone PLC and Alston & Bird LLP represent Xerox.

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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