Court Moves Forward Kraft Foods Excessive Fee Suit

A federal judge has moved forward claims by Kraft Foods Global employees that retirement plan fiduciaries breached their duties by offering investment options that underperformed and charged excessive fees.

U.S. District Judge Ruben Castillo of the U.S. District Court for the Northern District of Illinois rejected Kraft’s argument that the excessive fee claims were time-barred under the Employee Retirement Income Security Act (ERISA), saying that since the employees’ complaint did not reference the plan’s summary plan description and other plan-related communications, the company cannot prove the employees had knowledge of the fees through these documents prior to three years before the case was filed. Castillo also found the claims against Kraft and Altria Corporate Services regarding improper management of the Kraft Foods and Altria stock funds were not time-barred for the same reason.

However, the court did find that some of the employees’ claims against the Altria Investment Committee were time-barred because it stopped serving the plan in 2001, so its last alleged breach would have occurred more than six years before the suit was filed.

Castillo rejected the defendants’ argument that the employees did not satisfy Rule 8 pleading standards, which require that “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim of relief that is plausible on its face.'” He cited the 8th U.S. Circuit Court of Appeals reversal of a lower court decision in Braden v. Wal-Mart Stores, Inc. in which it found that employees stated claims of misconduct that could be traced to defendants’ actions and were likely to receive favorable judgment (see “Court Rules Wal-Mart 401(k) Suit Requires Further Discussion”).

Castillo directed all parties to “exhaust all efforts to settle this case” and ordered a review of the case status on January 6.

More than Excessive Fee Claims

In addition to accusing plan fiduciaries of selecting investment options that charged excessive or unreasonable fees (see “Kraft Fee Suit Plaintiffs Lose Jury Trial Effort”), the Kraft employees allege that the defendants breached their fiduciary duties by allowing the plan and its participants to pay excessive administrative service fees to service providers, including Hewitt Associates.

The employees accuse Kraft and Altria with fiduciary breaches regarding the Kraft and Altria stock funds, alleging that the funds charged employees investment fees and associated transactional fees, which resulted in the funds generating significantly less than the returns generated by Altria and Kraft stock sold on the open market, and that the funds were maintained as unitized funds instead of allowing employees to make direct investments in the common stock of Altria and Kraft.

In addition, the employees say Kraft and Altria breached their fiduciary duties in selecting the plan's Growth Equity Fund and Balanced Fund options, as both funds were expected to underperform relative to comparable investment alternatives.

The latest decision in George v. Kraft Foods Global Inc., et.al. is available here.

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Advisor Software Acquires Asset Management Firm

The vendor Advisor Software, Inc., said it will expand its offering to registered investment advisers (RIAs) with the acquisition of asset management firm Advisor Partners, LLC.

Advisor Partners provides investment management services to independent advisers and financial institutions through its Separately Managed Accounts Program and Managed Portfolio Program and also constructs customized model portfolios for financial institutions.

The Managed Portfolio Program allows institutions to outsource their existing wealth management offering or establish a new program. The program is designed for advisers who have raised their minimum account size over the years, yet wish to maintain a high level of service to smaller legacy accounts, according to a news release.

The Separately Managed Accounts Program is a customized, tax-managed and index-based core equity allocation. The program focuses on active tax management through tax loss harvesting in order to offset capital gains.

“By expanding our capabilities with Advisor Partner’s unique investment management programs, we will be able to offer clients our institutional-caliber wealth planning software as well as cutting-edge investment strategy alternatives,” said Andrew Rudd, chairman and CEO of Advisor Software, in the release.

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