Compliance

Participant Files Suit Over Advisory Fee Breakdown

A retirement plan participant accuses a well-known plan provider of delivering “no material services” in connection with certain advisory fees. 

By John Manganaro editors@plansponsor.com | September 16, 2016
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Plaintiff Lisa Patrico has filed a proposed class action suit on behalf of the Nestle 401(k) Savings Plan “and all other similarly situated qualified retirement plans,” under Sections 502(a)(2) and 502(a)(3) of the Employee Retirement Income Security Act (ERISA), targeting Voya Financial, Inc.

Other named defendants include Voya Institutional Plan Services, LLC; Voya Investment Management, LLC; and Voya Retirement Advisors, LLC. According to the broadly reaching complaint, the defendants provide services in connection with the administration of the Nestle 401(k) program and many others.

The plaintiff lays out her argument as follows: “ERISA’s prohibited transaction rules prevent a plan fiduciary, which includes the investment adviser, from causing the plan to engage in various transactions with ‘parties in interest’ which also include the investment adviser—the so-called transactional prohibitions. The prohibited transaction rules also prevent the investment adviser, generally, from causing the plan to engage in a transaction that would generate additional fees for the fiduciary investment adviser—the so-called self-dealing prohibitions.

“As a result of these prohibitions and in the absence of any applicable exemption, a financial institution such as Voya—which provides, trust, recordkeeping, brokerage and other services to qualified retirement plans, as well as investment funds—could not provide investment advice to participants. Voya could not do so out of concern that advising participants to invest in Voya’s own funds would be a prohibited transaction in violation of ERISA § 406.”

According to the compliant, one common and obvious solution to this problem is to have the investment advice provided by a registered investment adviser (RIA) that is independent of and unrelated to the financial institutions whose funds were included as investment choices in the plan.

“This would ensure that the fund provider did not have a financial stake in the outcome of the advice,” the complaint suggests. In this case, according to the complaint, the independent RIA Financial Engines Advisors LLC (FE) “claims to fulfill that role, and FE has become the preeminent purportedly independent investment advice provider to 401(k) plan participants.”

The complaint goes on to suggest that Voya “determined to make available investment advice services to the participants of its customers’ plans. If, however, Voya were to allow such services to be provided through an independent and unrelated investment adviser, Voya would lose out on all the associated fees it could charge to participants.” Accordingly, in breach of duty, the plaintiff alleges Voya “devised a strategy that would satisfy the need for a supposedly independent investment adviser while preserving Voya’s ability to collect fees for the program: Voya offers the advice program through Voya Retirement Advisors LLC and charges a fee for the service, but subcontracts with Financial Engines to actually provide the investment advice.”

NEXT: Breaking down the allegations 

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