Compliance

Starwood Hotels 401(k) Excessive Fee Suit Moves Forward

A district court judge found the plaintiffs “have pleaded sufficient facts from which the Court can reasonably infer that Starwood employed a flawed process for selecting recordkeeping and administrative services.”

By Rebecca Moore editors@plansponsor.com | May 04, 2017

A federal district court has moved forward one claim in a lawsuit against Starwood Hotels regarding excessive recordkeeping and administrative fees for its 401(k) plan.

U.S. District Judge Dale S. Fischer of the U.S. District Court for the Central District of California said in his opinion, “When viewed in the light most favorable to Plaintiffs, the Court can infer from these facts that Starwood’s recordkeeping and administrative fees were excessive prior to 2015 and are still excessive. Although Plaintiffs do not specifically allege how Starwood breached its fiduciary duty through improper decision-making, they have pleaded sufficient facts from which the Court can reasonably infer that Starwood employed a flawed process for selecting recordkeeping and administrative services.”

In addition to the plaintiffs’ breach of fiduciary duty claims based on its alleged failure to ensure reasonable recordkeeping and administrative fees, they claimed Starwood breached its fiduciary duties by failing to offer a stable value fund, follow participants’ investment instructions, provide adequate disclosure regarding revenue sharing, and exclude the BlackRock LifePath 2050 Index Fund, which charged excessive fees, from the plan’s investment menu. Starwood argued the statute of limitations bars all five claims.

For the claim regarding the BlackRock LifePath 2050 Index Fund, Fischer relied on In re Northrop Grumman Corp. Erisa Litig., which found a breach of fiduciary duty claim time-barred where documents sent to plaintiffs disclosed the fees charged, putting them on notice of the allegedly excessive fees. Fischer said the plaintiffs do not dispute they received documents disclosing the fees charged by the BlackRock LifePath 2050 Index Fund outside the Employee Retirement Income Security Act’s (ERISA)’s three-year statute of limitations period. He ruled the claim regarding this fund is time-barred.

Regarding the claim of excessive recordkeeping and administrative fees, Fischer noted that annual notices for the plan specify that some fees are deducted from the investment returns and do not appear as separate line items on the statements. In addition, the plaintiffs’ account statements also specify that some administrative expenses are paid from the expenses of the investment funds. So, Fischer found this claim is not time-barred.

On the other three claims Fischer noted that “despite the heading, ‘ALL CLAIMS ARE TIMELY . . .,’ Plaintiffs address only excessive fees. By failing to address Starwood’s statute of limitations arguments regarding the stable value fund, investment instructions, and revenue sharing theories of liability, Plaintiffs concede their merit. In the absence of an amended complaint, Plaintiffs may not proceed on the other aspects of their breach of fiduciary duty claim.” He gave plaintiffs until June 1 to file an amended complaint.

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