Compliance June 11, 2021

ERISA Excessive Fee Lawsuit Filed Against Generac Power Systems

The complaint includes allegations similar to those in many suits filed over the past few years.

Reported by


Generac Power Systems and its board of directors have joined the list of recent targets of an Employee Retirement Income Security Act (ERISA) excessive fee lawsuit.

A participant in the company’s 401(k) plan whose employment with Generac Mobile Products, a wholly owned subsidiary of Generac Power Systems, was terminated in May alleges in his proposed class action suit that the defendants breached their fiduciary duties by, among other things: authorizing the plan to pay unreasonably high fees for retirement plan services (RPS); failing to objectively, reasonably and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

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According to the complaint, the defendants failed to regularly monitor the plan’s RPS fees paid to covered service providers, including by not regularly soliciting quotes or bids from service providers. It states that from the years 2015 through 2019, “based upon the best publicly available information … the plan had on average 2,880 participants with account balances and paid an average effective annual RPS fee of at least approximately $260,250, which equates to an average of at least approximately $90 per participant.” The plaintiff contends that “a hypothetical prudent plan fiduciary would have paid on average an effective annual RPS fee of around $52 per participant, if not lower.”

Regarding investment fees, the lawsuit points to the plan’s use of higher-fee share classes as evidence that the defendants were not using a prudent process for selecting and monitoring investments. The complaint says plan fiduciaries should understand all fees related to different share classes as well as different types of investment vehicles, such as collective trusts.

The complaint also says that if a plan fiduciaries choose an active investment option, they must make a specific and informed finding that the probability that the active portfolio manager will outperform an alternative lower-cost active investment option or index fund warrants the higher fees charged by the active portfolio manager and that the risk/reward trade-offs show that the potential of outperformance is in the best interest of plan participants.

The complaint includes charts to support the plaintiff’s argument that during the class period, the investment options selected by the plan fiduciaries were 857.64% more expensive than prudent alternative and less expensive options covering the same asset category. “During the class period, defendants did not engage in an objectively reasonable process when selecting funds for the plan,” the lawsuit states.

Generac says it cannot comment on pending litigation.

Compliance June 10, 2021

Wake Forest University Baptist Medical Center Sued Over 403(b) Plan Fees

The lawsuit says plan fiduciaries failed to ensure reasonable investment fees and mismanaged revenue sharing to pay for administrative expenses.

Reported by


Wake Forest University Baptist Medical Center, its board of directors and its retirement benefit committee have been sued for allegedly failing to ensure the plan and its participants paid reasonable fees for investments and administration.

The complaint alleges that many of the mutual funds in the Wake Forest Baptist Medical Center 403(b) Retirement Savings Plan were more expensive than comparable funds found in similarly sized plans—those with more than $1 billion in assets. It says the expense ratios for the funds in the plan were up to 280%, in one case, and up to 273%, in another, above the median expense ratios for funds in the same investment category.

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The lawsuit also says fees were excessive compared with those of similarly sized plans. At the end of 2018 and 2019, the plan had more than $1.8 billion and $2.3 billion, respectively, in assets under management (AUM), which the plaintiffs say makes it a “jumbo” plan with substantial bargaining power regarding investment fees.

The complaint says 26 of the mutual funds in the plan in 2019 were not in the lowest share class, although AUM for these funds qualified them for the use of lower-cost share classes. The lawsuit notes that the TIAA Lifecycle target-date funds (TDFs) offered in the plan were moved to institutional share classes in 2018, but, it says, “this change was too little too late as the damages to participants in lost savings had already been baked in.”

According to the complaint, citing Form 5500 information, administrative/recordkeeping expenses are paid by the plan. However, the plaintiffs and their attorneys argue that the plan document provides that expenses may be paid from the plan’s trust but the trust “shall be used for the exclusive benefit of participants and their beneficiaries, and to pay administrative expenses of the plan to the extent not paid by the corporation if permitted under the applicable funding agreement.”

The lawsuit says, “Defendants’ breaches of their fiduciary duties, relating to their overall decisionmaking, resulted in the selection (and maintenance) of several funds in the plan throughout the class period that wasted the assets of the plan and the assets of participants because of unnecessary costs.”

The complaint goes on to say that revenue sharing from funds in the plan was used to pay for recordkeeping and it contends that this “resulted in a worst-case scenario for the plan’s participants because it saddled plan participants with above-market recordkeeping fees.” According to the lawsuit, in 2019, the plan paid more than $110 per participant in administrative and recordkeeping costs, and per participant costs were higher than that in 2015 and 2016. It states that the number of participants in the plan made it eligible for the lowest fees in the market.

The plaintiffs cite an NEPC study that found the majority of plans with more than 15,000 participants paid, on average, slightly over $40 per participant in recordkeeping, trust and custody fees, and no plan of that size paid more than $61. The complaint also cites a lawsuit, Moitoso v. FMR LLC, in which recordkeeper Fidelity said a plan with tens of thousands of participants and over $1 billion in assets could command recordkeeping fees as low as $14 to $21.

The plaintiffs say the allegedly excessive recordkeeping fees confirm “that the use of higher-cost share classes cannot be justified as a prudent means to pay recordkeeping and administrative costs via revenue sharing.” In addition, they say that despite the amount of revenue sharing collected from the plan’s investments, there is no indication that any excess was returned to participants.

As a final seal on their argument, the plaintiffs cite an ICI/BrightScope study which gave the Wake Forest Baptist Medical Center 403(b) Retirement Savings Plan a ranking of 43, taking into account “200+ unique data inputs per plan to calculate a single numerical score for every 401(k) plan in the country,” according to the lawsuit. And, according to the study, based on that ranking of 43, the average participant in the plan “would have to work an additional 25 years and will lose $242,155 in savings as compared to the top-rated plan in the peer group.”

In addition, the study says the median total plan cost for plans with more than $1 billion in assets is 0.22% of the total assets in a plan. The complaint says the total plan costs for Wake Forest Medical Center’s plan during the class period ranged from a high of 0.60% in 2015 to a low of 0.43% in 2018.

In addition to a breach of fiduciary prudence claim against the defendants, the lawsuit also asserts a failure to adequately monitor other fiduciaries claim against the Wake Forest Medical Center and its board.

The hospital has not responded to a request for comment about the lawsuit.

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