Compliance January 31, 2020

Excessive Fee Suit Targets Navy Defense Contractor Serco

The lawsuit resembles many others that have been filed under the Employee Retirement Income Security Act (ERISA), suggesting an employer permitted excessive recordkeeping and mutual fund fees in its 401(k) plan.

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A new Employee Retirement Income Security Act (ERISA) lawsuit, filed in the U.S. District Court for the Eastern District of Virginia, Alexandria Division, targets the Navy defense contractor Serco Inc.

In the text of the proposed class action compliant, Serco is accused of failing to provide its 401(k) plan participants with the most cost-effective mutual fund shares, among other issues. According to the complaint, for at least 21 of the 30 mutual funds share classes available within the plan, the same issuer offered a different share class (unselected by the plan) which charged lower fees and consistently achieved higher returns.

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“The plan, however, inexplicably failed to select these lower fee-charging and better-return producing share classes,” the complaint states. “As well, the administrative fees charged to plan participants were consistently greater than the fees of more than 90% of comparable 401(k) plans, when fees are calculated as cost per participant or when fees are calculated as a percent of total assets.”

The complaint goes on to state these “investment options and unreasonable fees cannot be justified.”

“Their presence confirms more than simply sloppy business practice; their presence is the result of a breach of the fiduciary duties owed by Serco Inc. to plan participants and beneficiaries,” the lawsuit states. “Prudent fiduciaries of 401(k) plans continuously monitor administrative fees against applicable benchmarks and peer groups to identify unreasonable and unjustifiable fees.”

The complaint further states the plan’s expenses are nearly double those of the mean among 26 comparator plans with more than 10,000 participants.

“Similarly, plaintiffs allege, among a per group of 22 plans with an asset range between $250 million and $500 million, the mean expenses were 0.41% of assets under management, which again compared unfavorably with the plan’s fees representing (0.81%) of assets,” the complaint states. 

Serco has not yet responded to a request for comment about the lawsuit.

Deals & People January 31, 2020

FIA and DiMeo Schneider to Combine Forces

In a statement to their clients, it was noted that Bob DiMeo, managing partner of DiMeo Schneider, and Mark Wetzel, president of Fiduciary Investment Advisors, have known each other for decades as friends and business confidants.

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DiMeo Schneider & Associates LLC and Fiduciary Investment Advisors LLC (FIA) are combining to make one registered investment adviser (RIA), with approximately $180 billion in assets under advisement. 

Of the assets under advisement, approximately $140 billion is defined contribution (DC) assets, of which approximately one-quarter—more than 100 clients—is 403(b) plans.

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Speaking to PLANADVISER, Michael Goss, managing partner at FIA, said that each of the two firms had grown in their own region and the combination will allow for a single organization to gain a national presence. The firm will have offices in seven locations (Austin, Texas; Boston; Chicago; Hartford, Connecticut; Los Angeles; Portland, Maine and Washington, D.C.) and serve more than 500 clients, including retirement plans, endowments/foundations and private clients. The combined firm will have a presence in 47 states.

In a statement to their clients, it was noted that Bob DiMeo, managing partner of DiMeo Schneider, and Mark Wetzel, president of FIA, have known each other for decades as friends and business confidants.

Besides the relationship between DiMeo and Wetzel, Goss said that the two firms have had a history of partnership in collaborating on business and client initiatives for many years, including sharing the same fiduciary governance calendar and 401(k) fee benchmarking data set. This transaction was “a natural progression” of the work the firms had been sharing, he said.

“We felt that as the firms’ continued their growth and both firm’s strategic vision was to continue to grow and expand throughout the country, that we could do that more effectively as a combined entity and quickly achieve our strategic visions,” Goss noted.

In the combined organization, DiMeo will serve as CEO, Wetzel as president, and a core group of managing partners from both firms will serve on the executive committee. There will be 30 equity partners in the combined organization. Goss noted that this is a growth story not a cost-cutting story, and adds that no layoffs are initiated as part of this transaction.

Once the deal closes, which is expected during the second quarter of 2020, the organization will operate under the name DiMeo Schneider & Associates L.L.C.

This news comes after a record-breaking 2019 in terms of RIA merger and acquisition (M&A) activity. The year also saw a record number of independent broker/dealer transactions, and M&A experts foresee many more deals to come in 2020.

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