401(k) suit claims higher revenue-sharing funds should have been used

A 401(k) fee lawsuit filed Wednesday against Sunnyvale, California-based Juniper Networks lobs a kitchen-sink load of claims against the company.

The plaintiff in the proposed class action alleges that the company failed in its fiduciary duty by allowing higher-than-necessary costs for investment management, record keeping and managed accounts. The complaint also points to an alleged failure to fully disclose fees and accurate performance information to the plan.

An unusual detail in the lawsuit is that it notes that two mutual funds used within Juniper Networks' $1.4 billion plan — the AB Discovery Value and Fidelity Total Bond Fund — were available in share classes with higher levels of revenue-sharing fees. Had the plan used the higher-revenue-sharing share classes, net costs conceivably could have been lower if those fees had been rebated back to participants, according to the complaint.

If revenue sharing is stripped out of total expenses, mutual fund fees can end up being lower in some cases, although research has also indicated that revenue sharing as a whole has made 401(k) plans more expensive.

However, the plaintiff also claims that those two funds, as well as numerous others on the menu, were inferior to other options from different investment managers and thus should not have been included at all, based on lower potential costs.

“Juniper Networks takes its obligations very seriously to prudently manage its 401(k) plan for employees," a company spokesperson said in an email "We intend to vigorously defend against the claims asserted.”

The complaint also raises claims related to the record-keeping and managed-account fees paid to Fidelity, which is not a defendant in the case. The plan’s record-keeping fees varied from as little as $46 to as much as $109 per participant per year from 2015 to 2019, with an average of $80, according to the complaint. Compared to similarly sized plans during that time frame, costs could have been roughly half that, or lower, the plaintiff claims.

Juniper Networks' plan also allegedly overpaid for managed accounts, which were 65 basis points through Fidelity’s Strategic Advisors, the lawsuit stated.

“[T]here are a number of other managed account providers whose services are virtually identical … and whose publicly known fees range from 0.25% to 0.30% on all assets, e.g., Betterment, Vanguard and Charles Schwab, for plans much smaller,” the complaint read. “These companies represent the normal range of fees for what is typically charged for managed account services.”

The lawsuit was filed in U.S. District Court for the Northern District of California, San Jose Division. The plaintiff and proposed class are represented by law firms Walcheske & Luzi and Creitz & Serebin.

401(k) LAWSUIT COPIES OTHER RECORD-KEEPING FEE CLAIMS

Xerox Corp. on Wednesday was sued by several of its 401(k) participants over the record-keeping fees charged by an affiliate of the company.

The lawsuit, filed in U.S. District Court in Connecticut, is one of many that have been brought recently against employers for alleged fiduciary breaches stemming from excessive record-keeping charges.

The plan, which represented about $3.8 billion in assets among more than 24,000 workers, used its in-house record-keeping service beginning in 2013, according to the class-action complaint. That service, provided by Xerox HR, was spun off in 2015 as Conduent HR Services, although the plan retained it until this year, the plaintiffs stated.

“Defendants failed to prudently and loyally oversee the plan’s record-keeping service provider, and instead used the plan to promote Xerox’s own business interests,” the complaint read.

Between 2013 and 2019, record-keeping expenses increased from $54 per participant to $136, they said. Workers paid “as much as four times more than what the plan would have paid in the open market for record-keeping services of comparable or superior quality. As a result, participants paid millions of dollars per year in excessive fees from 2015 through 2021.”

The complaint raises two claims — one for breaches of duties of loyalty and prudence and another for failure to monitor fiduciaries.

A spokesperson for Xerox said that the company does not comment on pending litigation.

Plaintiffs in the proposed class are represented by law firms Nichols Kaster and Garrison Levin-Epstein Fitzgerald & Pirrotti.