401(k) lawsuits keep piling up

KeyCorp and United Health Services are facing class-action lawsuits over their 401(k) plans, the latest such cases against large retirement plan sponsors.

Despite the slowdown that the COVID-19 pandemic has caused in many parts of the country, 401(k) litigation appears largely unaffected. The two recent lawsuits follow other claims filed weeks earlier against Land O’ Lakes and Schneider Electric over their 401(k) plans.

Cleveland-based KeyCorp, the parent of KeyBank National Association, was sued last Thursday in U.S. District Court in the Northern District of Ohio. Plaintiffs accuse the plan sponsor of failing to rein in the plan’s record-keeping fees.

The KeyCorp plan included more than 28,000 participants and a total of $2.6 billion in assets as of the end of 2018, according to Department of Labor data provided by BrightScope.

Participants in the plan are charged administrative fees of $63 per year, according to the complaint. A more competitive rate for a plan of that size is between $30 and $40 annually, the plaintiffs argued. Over the past six years, participants have paid “millions of dollars” more than they would in a more competitive arrangement, the complaint said.

The lawsuit points to KeyCorp’s longstanding relationship with plan provider Alight Solutions as part of the reason for allowing higher fees than it could otherwise negotiate. Alight, which administers KeyCorp’s pension and retiree medical plans, is not named as a party in the lawsuit.

A spokesperson for KeyCorp cited a policy of not commenting on active litigation.

Plaintiffs in the lawsuit are represented by law firms Barkan Meizlish DeRose Wentz McInerney Peifer and Nichols Kaster.

A separate class-action lawsuit was filed last Friday against Universal Health Services over that company’s $1.9 billion defined-contribution plan. Plaintiffs claim that since 2014 they have overpaid for investment management, allegedly because the plan sponsor did not consider lower-cost or better-performing options, such as passively managed funds or collective investment trusts, according to the complaint.

Further, the plan sponsor did not select the lowest-cost share classes for some investment options on the plan menu, which resulted in higher fees for participants, the plaintiffs wrote.

The case was filed in U.S. District Court in the Eastern District of Pennsylvania. Law firm Capozzi Adler represents the plaintiffs.

Universal Health Services did not immediately respond to a request for comment.

Those two cases came in the wake of other recent litigation involving large 401(k) plans.

Last month, Land O’Lakes was hit with a class-action lawsuit involving numerous allegations related to high fees in its $1.4 billion plan. Plan participants for years have overpaid for investment management and administration, according to the complaint filed May 26 in U.S. District Court in Minnesota.

In that case, the plaintiffs also cite “additional millions of dollars” paid by managed account provider Financial Engines to the plan record keeper, Alight Solutions, which came from managed account fees paid by participants. “However … Financial Engines provides no services relative to plan administration or recordkeeping,” the complaint said.

Plaintiffs in that case are represented by Lockridge Grindal Nauen and Capozzi Adler.

Land O’Lakes "has become aware of the new lawsuit and will be reviewing the allegations," a spokesperson said in an email statement. 

"The company is pleased to offer valuable benefits to its employees, including retirement programs," the statement read. "We take our commitment to employees and obligations to those plans very seriously.  We are confident that the court will find that we have managed these programs appropriately."

Also filed on May 26 was a class-action case against Schneider Electric and Aon Hewitt Investment Consulting. That lawsuit, filed in U.S. District Court in Massachusetts, includes several claims of breaches of the Employee Retirement Income Security Act, mostly related to the replacement of Vanguard mutual funds for a brand-new collective investment trust series from Aon.

“Starting on Feb. 1, 2017, defendants completely restructured the plan to include proprietary Aon Hewitt collective investment trusts that served only to benefit Aon Hewitt,” the complaint said.

By the end of 2017, Aon Hewitt managed $3.3 billion of the plan’s $3.9 billion in assets, according to the lawsuit.

“The investment of plan assets in Aon Hewitt’s proprietary funds resulted in Aon Hewitt earning over $600,000 annually in additional revenue,” according to the complaint.

After removing the Vanguard investment options from the plan menu, the sponsor later in 2017 added five Vanguard index mutual funds, though most of those were higher-cost share classes than the ones that were previously used in the plan, the plaintiffs claim.

“It is evident that the Schneider Electric Defendants allowed Aon Hewitt to add its proprietary funds to the plan for Aon Hewitt’s interest and not for the exclusive interest of plan participants, and in return, Aon Hewitt reduced the cost to Schneider Electric of the corporate benefits plans for which Schneider Electric was liable,” the plaintiffs said.

The CITs underperformed the passive investment options previously used in the plan and carried higher fees, according to the lawsuit.

Additionally, the plaintiffs allege that the plan sponsor allowed excessive record-keeping and managed account fees to be paid to Vanguard. Vanguard was not named as a party in the lawsuit.

The plaintiffs are represented by Naumes Law Group and Schlichter Bogard & Denton, the latter of which has become nearly synonymous with 401(k) litigation.

Schneider Electric did not respond to a request for comment by deadline.

A spokesperson for Aon declined to comment, citing a policy of not discussing litigation.