A participant in the CareerBuilder LLC 401(k) Plan has filed a proposed class action lawsuit alleging that plan fiduciaries allowed the plan’s recordkeepers, ADP and Empower, and its investment adviser and/or trustee, Morgan Stanley Smith Barney, to receive excessive and unreasonable compensation.
CareerBuilder has not yet responded to a request for comment.
According to the complaint, the providers received excessive compensation through:
- direct “hard dollar” fees paid by the plan to ADP and/or Morgan Stanley;
- indirect “soft dollar” fees paid to ADP and/or Morgan Stanley by mutual funds added and maintained in the plan to generate fees to ADP and/or Morgan Stanley;
- fees collected directly by ADP and/or Morgan Stanley from mutual funds added and maintained in the plan to generate fees to ADP and/or Morgan Stanley; and
- float interest, access to a captive market for 401(k) rollover materials to plan participants, and other forms of indirect compensation.
The plaintiffs say that while the hard dollar fees appear modest or misstated, it must be the case that the vast majority of ADP’s and/or Morgan Stanley’s and possibly others’ compensation came in the form of revenue sharing.
The lawsuit says it is estimated that the plan overpaid for administrative and advisory services by at least $1.1 million from September 30, 2013, to 2017. “In addition, it is expected that a reviewof data from 2018 and forward, after discovery, will show additional excessive amounts paid for administrative and advisory services during these years until the present,” the complaint says.
In addition, the plaintiff alleges that in order to provide for these revenue streams, the defendants larded the plan with excessively expensive mutual funds—to the exclusion of superior alternatives—which in turn paid ADP and/or Morgan Stanley out of the excessive fees they collected from plan investments.
The plaintiff says these mutual funds collectively underperformed superior alternative funds for a variety of reasons, including the fact that the alternatives charged lower fees by, among other things, removing the additional payments to ADP and/or Morgan Stanley. In the complaint is a table that the plaintiff says shows nearly 80% of the investments listed paid fees that were well over 40% higher than they should have paid for the identical product.“In addition, it is expected, once complete data is available, the numbers will show that revenue sharing on these funds were between 18% to over 30%. Revenue sharing at this level, shows a lack of any prudent process for monitoring these funds. Clearly, had there been a prudent monitoring process in place, the majority of these funds would have been replaced with less expensive alternatives as early as September 30, 2013,” the complaint says.