A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the Western District of North Carolina, Charlotte Division, naming as defendants the Duke Energy Corp. and its benefits committee.
“Defendants have a fiduciary duty—the highest obligations under the law—to engage in prudent practices to monitor the plan’s expenses and ensure they are minimized,” the lawsuit states. “Defendants have failed to do this with respect to the plan’s recordkeeping and managed account services. They have allowed the plan to pay roughly twice as much for the same services than other plans pay.”
The plaintiffs suggest the plan, its participants and beneficiaries have suffered “significant losses totaling millions of dollars.”
“Given the exorbitant excess fees defendants have allowed the plan to pay, it is reasonable to infer defendants have failed to follow these prudent practices and have thus failed to uphold their fiduciary duties,” the lawsuit states.
According to the lawsuit, from the beginning of 2014 through the end of 2018, the plan had between 33,000 and 39,000 participants, and between $6.7 and $8.6 billion in assets. The plaintiffs say plans of this size are often referred to as “jumbo” or “mega” plans and have “significant bargaining power to extract extraordinarily low fees for services,” including for recordkeeping and managed account services.
Responding to a request for comment, Duke Energy provided the following statement: “Duke Energy’s retirement savings plan has been carefully designed and administered as a retirement savings tool for the company’s 29,000 employees. Duke Energy and its fiduciaries take seriously their responsibilities under the federal Employee Retirement Income Security Act of 1974, and work diligently to fully discharge their duties under the law. The company will vigorously defend against this lawsuit.”
Plaintiffs state that Fidelity has been the plan’s recordkeeper since at least 2009, and that the plan’s Form 5500s for 2014 through 2018 show that Fidelity’s direct compensation for recordkeeping services to the plan has been between $58 and $67 per participant during the class period.
“Based on [our] investigation and publicly available filings, a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable administrative services of like quality for approximately $25 to $30 per participant near the beginning of the statutory period, in 2014, and between $20 and $25 per participant toward the end of the class period,” the lawsuit states. “Not only have Duke Energy’s recordkeeping fees been two to three times higher than competitive marketplace rates, but the Form 5500s also demonstrate that Duke Energy has used the same recordkeeper for at least the past decade, and that the recordkeeping rates paid by participants stayed roughly the same between 2014 and 2018, while marketplace rates were dropping. This gives rise to an inference that defendants failed to monitor recordkeeping compensation during [the class period].”
The complaint suggests the plan’s recordkeeping expenses demonstrate that defendants failed to engage in prudent monitoring and engage in prudent practices to keep those costs at competitive levels.
The text of the lawsuit goes on to state that the managed account option in the plan is operated by Financial Engines Advisors, an independent investment advice and management services provider. Though not named as a defendant in any of the cases, Financial Engines Advisors is involved in other ongoing pieces of ERISA excessive fee litigation.
“For this service, defendants have allowed participants to pay an annual fee—0.5% of their average account balance for the year—regardless of the size of their account,” the complaint alleges. “In doing so, defendants have caused the plan to pay significantly more for managed account services than other plans pay for identical services. Defendants also failed to capture tiered pricing for participants with larger account balances, which is industry standard for managed account services.”
The full text of the complaint is available here.