The Kansas City Star reports that Donna Huffman, owner of Home Quest Mortgage in Oskaloosa, Kansas, filed a class-action lawsuit alleging that Fidelity and ADP conspired to hide the actual costs of retirement plans that small business owners establish for themselves and their employees.
The suit also alleges that a large but unknown number of small business owners who bought what are known as SIMPLE IRAs from the two companies between late November 1998 and mid-January 2004 suffered financial damages, according to the newspaper. The suit did not specify the damages.
Huffman told PLANSPONSOR that ADP solicited Home Quest’s business for the SIMPLE plan. Her company already pays annual fees to ADP to administer the plan for her and her employees, but discovered via a phone call to ADP that high costs were being charged to the plan for fees Fidelity was paying to ADP for getting and keeping business. Huffman called as a plan participant to find out why earnings posted to her account were so low.
Huffman said in the interview with PLANSPONSOR that the charges to the plan were more than the match on employee contributions she was providing to the plan as the plan sponsor. She says she has lost principal and never made a gain in the plan. “Under this plan, I can never retire,” she said. “If I’d never put anything into the plan, I would have more money.”
According to the Kansas City Star the suit alleges that the firms, along with the executives, fund managers and others named as defendants, failed to adequately disclose fees that ADP received for referring businesses’ plans to Fidelity, as well as fees that Fidelity collected for managing the accounts. The fees that Fidelity allegedly paid ADP are similar to “shelf space” revenue-sharing arrangements that the US Securities and Exchange Commission and other securities regulators investigated last year, according to the suit.
The newspaper reports that the suit also claims that m utual fund providers in those arrangements offered commissions and other payments to brokers who referred business to them without fully disclosing the payments to clients or regulators.
Both Fidelity and ADP declined to comment to the Star on the accusations.