A participant in Safeway Inc.’s 401(k) plan is suing the plan sponsor, its benefits committee and its recordkeeper, now Empower Retirement, for breaching their fiduciary duties and/or engaging in transactions prohibited by the Employee Retirement Income Security Act (ERISA) in connection with target-date funds (TDFs) managed by JP Morgan Asset Management (JPM) and offered as investment options in the plan.
In a statement to PLANSPONSOR, Empower said, “We won’t comment on pending litigation; however, we will say that we believe this suit and the claims it makes are without merit, and we will defend the matter vigorously.”
According to the complaint, the defendants breached their fiduciary duties to plan participants by selecting JPM target-date funds as investment options for the plan that charged excessive fees as compared to readily-available alternatives.
In addition, in connection with selecting the JPM target-date funds as investment options for the plan, the Safeway defendants also agreed to a “revenue-sharing” arrangement whereby a large portion of the fees charged by the JPM target-date funds and paid by participants was kicked back to the recordkeeper. The complaint says the revenue-sharing was to compensate the recordkeeper for recordkeeping services, but the amount of the fees was far in excess of the reasonable value of such services and thus defendants engaged in transactions prohibited by ERISA.
The lawsuit alleges that during the relevant times, the JPM Smartretire Passiveblend Funds charged participants in the Plan who invested in such funds between 47 and 50 basis points of the amount invested as a management fee. By comparison, the Blackrock Lifepath Index funds which were replaced by the JPM Smartretire Passiveblend Funds in 2011 charged only a 13 basis point fee.
In addition, the lawsuit says alternatives to the JPM Smartretire Passiveblend Funds that were readily available as of 2011 also charged substantially lower fees. It notes that target-date funds offered by Vanguard, for example, charge about a 15 basis point fee. Also, net of management fees, the Vanguard target-date funds substantially outperformed the comparable JPM Smartretire Passiveblend Funds. NEXT: Recordkeeping fees were too high