Compliance January 31, 2022

NYC Courier Faces ERISA Breach Lawsuit

The DOL has accused the plan sponsor and plan administrator of failing to operate the employer-sponsored 401(k) plan in the best interests of participants and instead allowing plan assets to benefit the company.

Reported by

Department of Labor (DOL) Secretary Marty Walsh has filed a lawsuit in the District Court for the Southern District of New York against Velo Corp. of America, its plan administrator and its plan trustee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA) in regard to the Velo Corp. of America 401(k) Profit Sharing Plan.

Velo Corp. is the named owner and operator of Quik Trak, a New York City area courier and bike messenger service, according to the complaint.

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Walsh alleges that the defendants breached their fiduciary duties, caused the plan to enter into non-exempt prohibited transitions and engaged in self-dealing. The complaint alleges that the defendants failed to remit all employee contributions to workers’ accounts from January 2016 onward; allowed contributions to remain unsegregated in Velo’s general operating account; and failed to ensure that all employer matching contributions for employees were made to the plan.   

“Because of these breaches, the plan and its participants and beneficiaries have suffered significant losses, including lost opportunity costs, for which the defendants are jointly and severally responsible,” the complaint states.

Walsh has included in the complaint seven claims for relief.

Employer-sponsored defined contribution (DC) plans are obligated to always act in the best interests of participants, or company owners and plan fiduciaries can face legal retribution. For example, the defendants are accused failing to administer the plan by not honoring “at least two requests for distributions by participants,” according to the complaint.

The suit notes that ERISA Section 403(c)(1) requires plan assets to be held only for the exclusive purposes of providing benefits to plan participants and defraying reasonable plan administration expenses, and it expressly forbids plan assets inuring to any employer’s benefit.

“[The defendants] were responsible to but failed to remit all employee contributions to the plan after they could have reasonably segregated the employee contributions from Velo’s general assets,” the complaint states. “By their actions and omissions, [the defendants] allowed plan assets to inure to the direct benefit of Velo.”

Additionally, the complaint includes allegations that the defendants engaged in ERISA prohibited transactions for transferring plan assets to a “party in interest”; for failing to promptly segregate and remit all contributions to the plan; for failing to make all required employer matching contributions to the plan; and for dealing with plan assets in their own interest or for their own account.

A lawsuit alleging self-dealing was filed against Bessemer Trust Co. earlier this month. 

Some plan sponsors have started to include defensive provisions to manage fiduciary breach claims and litigation risks.  

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

Compliance January 28, 2022

Bessemer Trust Company Faces ERISA Self-Dealing Lawsuit

The plaintiffs say the firm’s retirement plan was stuffed full of high-cost, proprietary funds.

Reported by

A former retirement plan participant of the Bessemer Trust Company 401(k) and Profit-Sharing Plan has filed a lawsuit against the company and its plan committee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA).

The plaintiffs allege the plan was managed in a manner that benefited the company rather than participants. According to the complaint, the defendants used the plan to promote Bessemer Trust’s Old Westbury mutual fund business and maximize the company’s profits.

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The lawsuit alleges that among all plans with at least $100 million in assets, none other than the Bessemer plan invested in any Old Westbury funds.

“The defendants’ favoritism towards Old Westbury Funds has not only led to the retention of overpriced proprietary funds, but also the retention of underperforming proprietary funds,” the complaint states. “For example, the Old Westbury Large Cap Strategies fund, the plan’s largest holding, trailed its benchmark by a staggering 6.40% percent per year over the five-year period ending 2020.”

The plaintiffs say stuffing the plan with Old Westbury proprietary funds cost retirement plan participants millions in excess fees from high cost, poor-performing investments and subsequent lost compounding and uncaptured investment growth.

The lawsuit alleges the plan’s overall expenses were also excessive for its’ size.

“For plans with $100 million to $500 million in assets, like the plan, the average asset-weighted total plan cost is between 0.42% and 0.47%,” the complaint states. “In contrast, the plan’s total costs were approximately two times higher, ranging from 0.73% to 0.99% throughout the statutory period.

Additionally, high-cost Old Westbury funds comprised over 98% of the plan’s investment expenses, according to the complaint.  

“Despite the Old Westbury Funds’ clear disfavor among similarly situated plan fiduciaries, defendants have selected and retained a lineup of funds laden with Old Westbury Funds,” the complaint states. “Indeed, defendants have not passed up a single opportunity to self-deal in the plan: the only non-Old Westbury options in the plan represent 401(k)-staple asset classes or investment styles for which Old Westbury does not maintain a proprietary offering.”

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

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