Compliance

Fujitsu Faces 401(k) Lawsuit by Participants

In addition to calling Fujitsu's 401(k) the most expensive large plan in the country, the lawsuit calls out the defendants design and implementation of custom TDFs.

By Rebecca Moore editors@assetinternational.com | July 05, 2016
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A newly filed retirement plan excessive fee suit claims fiduciaries of the Fujitsu Group Defined Contribution and 401(k) Plan breached their fiduciary duties of loyalty and prudence under the Employee Retirement Income Security Act (ERISA) by designing and administering one of the most expensive large 401(k) plans in the country.

According to the complaint, as of the end of 2013, the plan had approximately $1.3 billion in assets. The lawsuit contends that among defined-contribution plans with more than $1 billion in assets, the average plan has costs equal to 0.33% of the plan’s assets per year. However, in 2013, total fees for the Fujitsu plan amounted to approximately 0.88% of Plan assets, or about $11,400,000. In 2014, total fees amounted to approximately 0.90% of Plan assets, or about $11,900,000.

“These fees are almost three times higher than the average for plans of similar size, making the Plan one of the five most expensive defined contribution plans out of approximately 650 plans with assets of over $1 billion dollars. Had the Plan simply maintained average expenses (which likely exceed the costs a prudent fiduciary would incur), the Plan would have paid only $4,260,000 in fees in 2013, and $4,400,000 in fees in 2014, demonstrating that the Plan incurred at least $7 million per year in excess fees,” the complaint says.

The plaintiffs in the lawsuit, participants in the plan, attribute the high costs to three factors: defendants failed to utilize the least expensive available share class for many mutual funds within the plan; defendants caused the plan to pay recordkeeping and administrative expenses far in excess of what a prudent fiduciary would pay for those same services (plaintiffs estimate that after accounting for revenue sharing, the plan paid approximately eight to ten times what a prudent fiduciary would have paid for recordkeeping in 2014); and defendants systematically failed to manage the plan’s investments in a cost-conscious manner, selecting and retaining investments without regard for the cost of those investments and without considering the availability of far cheaper options that would have provided comparable or superior investment management services.

However, the complaint specifically calls out the design and implementation of the plan’s target-date funds (TDFs).

NEXT: “Fundamentally flawed” TDFs