A New England grocery store chain is paying $17.5 million to settle claims it mismanaged its 401(k) plan by not including enough investment risk.
The agreement, submitted to the court last Friday, will compensate as many as 18,600 individuals who were participants in or beneficiaries of the plan between July 30, 2013 and Nov. 20, 2020.
DeMoulas Super Markets, which operates Market Basket grocery stores in Maine, Massachusetts and New Hampshire, allegedly breached its fiduciary duty to plan participants by opting for a single investment option -- a mix of several mutual funds in which 70% of assets were allocated to domestic fixed income, 20% to U.S. equities and 10% to international stocks, according to the lawsuit. During various periods, the plan also held tens of millions of dollars in cash, rather than a higher-yielding stable value fund or other investment.
For employees, especially younger workers who were decades away from retirement, that meant years of underperformance, the plaintiffs’ lawyers wrote in the 2019 complaint filed in U.S. District Court in the District of Massachusetts.
“Out of 674 similarly-sized retirement plans across the country, the plan performed worse -- far worse -- than any other plan during the class period, with returns that were significantly below even the lowest decile of such plans,” the complaint read.
The DeMoulas plan had about $861 million in assets among more than 13,000 participants as of the end of 2019, according to data from the Department of Labor. The 401(k) is profit-sharing plan that has a six-year vesting schedule and does not allow participants to make their own contributions, according to court records.
In addition to the monetary component of the settlement, the agreement requires DeMoulas to limit the plan’s cash holdings to 10% and revise the plan’s investment policy statement to raise the target for annual returns by 1%.
Law firms Block & Leviton and Nichols Kaster represent the plaintiffs.
Teva Pharmaceuticals has agreed to pay $2.55 million to settle a class-action lawsuit brought last December by law firm Capozzi Adler, which has been the heaviest 401(k) litigator this year by number of cases.
A proposed deal filed with the court last Wednesday would provide payments to people who participated in the plan between Dec. 6, 2013, through June 28, 2019.
The plan represented nearly $2 billion among 12,000 participants at the end of 2019, according to DOL data.
The complaint filed in U.S. District Court in the Eastern District of Pennsylvania is similar to dozens of cases against plan sponsors recently brought by Capozzi Adler. The firm alleges the company breached its fiduciary duties to participants by failing to opt for the lowest-cost investment options, including the cheapest share classes of the funds that were on the plan menu.
As much as $850,000 of the settlement will go to attorneys’ fees.
L Brands, which owns Victoria’s Secret and Bath & Body Works, was sued Monday for alleged fiduciary breaches in its $1.6 billion 401(k) plan.
In that class-action case, law firms Goldenberg Schneider and Shepherd Finkelman Miller & Shah allege that the company failed to get competitive pricing for record-keeping and administrative costs as well as some investment fees.
The plan, which included about 34,000 participants as of the end of 2019, has annual record-keeping and administrative costs of about $56 per person, compared with an industry average for similarly sized plans of about $35, according to the complaint.
The plan menu includes mutual funds, collective investment trusts, L Brands stock and a brokerage window. The law firms representing the plaintiffs allege a breach of fiduciary duty over one investment option, the Artisan International Fund. That fund is available in an institutional share class, with net fees of 97 basis points, but the plan includes an investor share class with net fees of 119 bps, according to the complaint.
Between 2014 and 2019, the plan’s total costs for participants ranged from 51 bps to 62 bps, which “was 23 to 33 bps higher than that which defendants should have reasonably accepted or negotiated for under any circumstances and caused the plan to incur an overpayment of approximately $17.3 million in fees,” the law firms wrote in the complaint.
L Brands did not immediately respond to a request for comment.
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