Compliance August 17, 2020

LinkedIn Now on Long List of Plan Sponsors Facing Excessive Fee Lawsuits

Defendants are accused of failing to use the lowest cost share class for many of the funds in the plan and failing to consider CITs and index funds as lower-cost alternatives.

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One current and two former participants of the LinkedIn Corp. 401(k) Profit Sharing Plan and Trust have sued LinkedIn, its board of directors and its 401(k) committee for breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties.

According to the complaint, the plan has at all times during the class period maintained more than $164 million in assets—including having more than $817 million in assets in 2018—qualifying it as a large plan in the defined contribution (DC) plan marketplace and giving it “substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.” The plaintiffs allege, however, that the defendants did not try to reduce the plan’s expenses or scrutinize each investment option that was offered in the plan to ensure it was prudent.

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The class period is defined in the complaint as August 14, 2014, through the date of judgment on the case. The lawsuit alleges that, in many instances, the defendants failed to use the lowest cost share class for many of the mutual funds in the plan, failed to consider certain collective investment trusts (CITs) available as lower-cost alternatives to the mutual funds in the plan and failed to consider replacing actively managed funds with lower-cost index funds with similar investment objectives.

As in other excessive fee lawsuits, the use of the Fidelity Freedom Funds target-date fund (TDF) series is called out in the LinkedIn case. However, it is not just for the use of the actively managed version of the TDF suite rather than the index version, as has been the case in other lawsuits, it is also for not offering the CIT version offered by Fidelity. Notably, the complaint says LinkedIn changed the TDFs offered in the plan from Fidelity Freedom K funds to FIAM Blend Target Date Q Funds at some point in late 2018 or early 2019, but the plaintiffs says this was “too little too late” and say the change “should have been done much sooner.”

All these actions cost the plan and its participants millions of dollars, the complaint alleges.

Finally, the lawsuit says, “the structure of this plan is rife with potential conflicts of interest because Fidelity and its affiliates were placed in positions that allowed them to reap profits from the plan at the expense of plan participants.” The complaint notes that Fidelity is the plan’s trustee and an affiliate of Fidelity performs the recordkeeping services for the plan.

“This conflict of interest is laid bare in this case where lower-cost Fidelity collective trusts and index funds—materially similar or identical to the plan’s other Fidelity funds (other than in price)—were available but not selected because the higher-cost funds returned more value to Fidelity. … The company, and the fiduciaries to whom it delegated authority, breached their duty of undivided loyalty to plan participants by failing to adequately supervise Fidelity and its affiliates and ensure that the fees charged by Fidelity and its affiliates were reasonable and in the best interests of the plan and its participants,” the complaint states.

LinkedIn has not yet responded to a request for comment.

In Practice August 17, 2020

Remote Meetings May Continue Indefinitely, In Part, for Advisers

One silver lining in the coronavirus pandemic has been a rethink of the need for certain business travel; many who used to travel extensively across the country are welcoming videoconferencing.

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With millions of Americans working remotely from home due to the coronavirus pandemic, retirement plan advisers have replaced meetings with plan sponsors and participants that they would have held in person with videoconferencing.

At first, this was seen by many as a burden and a likely barrier to closer client connections, but now that remote advising has been the norm for several months, many in the industry think this is a trend that will continue, at least in part, after the COVID-19 crisis is resolved.

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Doug Murray, senior vice president for strategic growth in Voya’s retirement business, says he believes that many plan sponsors will continue to agree to virtual meetings even after the virus is eradicated and people return to their offices. Fully remote relationships may not be likely, but rather there will be a blend of virtual and in-person services.

“When we do pivot back to something that is more ‘normal,’ I can see it as a blend,” Murray says. “Maybe an adviser who was meeting their plan sponsor clients four times a year in person will meet twice a year in person and twice via Zoom. Perhaps, rather than having five people travel to a sales presentation, three people will travel and two will dial in through Zoom.”

For their part, advisers are telling Voya that they have been happy to replace a heavy schedule of in-person meetings and travel with virtual sessions.

“I have heard from a number of consultants that they find these types of meetings can be efficient and extremely productive,” Murray says.

Rick Fuerman, head of defined contribution (DC) marketing at Hartford Funds, agrees with Murray.

“We believe virtual meetings and webinars will become more common, even when the virus is eradicated,” Fuerman says. “This certainly will be beneficial to advisers, because working virtually can mean you are working more flexibly and productively. This will remain a viable option for financial professionals, and it is likely that plan sponsors and participants will like having another means of meeting with their advisers.”

David Swallow, head of consultant relations at TIAA, agrees that, to a degree, virtual meetings are now more acceptable to sponsors. However, he is quick to add, the extent to which they are comfortable will vary by client.

“Some clients really value face-to-face meetings, but may be more amenable to a virtual environment,” he says.

As to whether the travel cost savings should be passed on to sponsors, Swallow says he does not think that is necessary.

“Even though advisers are conducting work virtually, the amount of work they do and their fiduciary responsibilities have not changed,” he says. “Despite the travel efficiencies, they are still dealing with the same risks.”

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