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.
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 has not yet responded to a request for comment.