Compliance

Insperity Fails to Get Excessive Fee Suit Dismissed

For one thing, a judge found plaintiffs' allegations concerning switching to a newly created Reliance Trust Company TDF were sufficient to state a claim.

By Rebecca Moore editors@strategic-i.com | March 13, 2017
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A federal court judge has mostly denied motions to dismiss a lawsuit against Insperity, a professional employer organization (PEO) that offers a 401(k) plan to employees of small- and medium-sized businesses that contract with Insperity to provide human resources services. The lawsuit accused Insperity and some of its subsidiaries and providers with violating their fiduciary duties by offering plan funds with excessive fees and engaging in self-dealing, among other claims.

For one thing, the plaintiffs contend in their complaint that the defendants breached their fiduciary duties and committed prohibited transactions under the Employee Retirement Income Security Act (ERISA) by selecting untested proprietary funds as investment options for the plan and retaining those funds despite their poor performance, which benefited defendants at the expense of participants.

Plaintiffs allege that in 2012, Reliance removed the plan's J.P. Morgan-managed target-date funds (TDFs) and replaced them with the Insperity TDFs, for which Reliance Trust Company is the investment manager and which had been created two days before Reliance included them in the plan. Reliance then purportedly transferred $466 million of the plan's assets into these funds, using the plan's assets as seed money. Like other target-date funds, Reliance's assets invested in other funds that had their own fees and expenses that were deducted from fund assets. Unlike other target-date funds, including those offered by established competitors such as J.P. Morgan, Vanguard, and T. Rowe Price, Reliance allegedly charged additional management and administrative fees in addition to the fees assessed by the underlying funds. According to the Amended Complaint, Reliance's funds drastically underperformed alternatives from J.P. Morgan, Vanguard, and T. Rowe Price, causing the plan losses of more $56 million compared to prudent alternatives. Plaintiffs allege Reliance's choice was made to benefit itself and because its funds paid revenue sharing to Insperity. U.S. District Judge Mark H. Cohen of the U.S. District Court for the Northern District of Georgia said that distinguishes this case from those that merely allege underperformance of selected funds without a concomitant allegation of self-dealing.

Cohen found plaintiffs' allegations sufficient to state a claim for breach of fiduciary duty against Reliance, and in denying the motion to dismiss, said Reliance's arguments are more appropriately addressed on summary judgment, after the benefit of discovery.

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