Jumbo Imprudence Alleged in H.E. Butt ERISA Challenge

Plaintiffs have filed a new proposed class action Employee Retirement Income Security Act (ERISA) complaint in the U.S. District Court for the Western District of Texas, San Antonio Division.

Their fiduciary breach suit is filed on behalf of the H-E-B Savings and Retirement Plan, naming as defendants some 20 John and Jane Does, along with the H.E. Butt Grocery Company and the retirement plan investment and administration committees.

The complaint contains an extensive amount of general information and statements about the defined contribution retirement plan industry, citing important precedent setting cases such as Tibble vs. Edison and Hughes Aircraft Co. vs. Jacobson.

According to the complaint, defendants failed to properly monitor and control the plan’s expenses, and allowed the plan to become one of the most expensive “jumbo” 401(k) plans in the country. Plaintiffs suggest the plan’s fees were, at a minimum, nearly three-times the average of peer plans, “and at least 50% higher than the 90th percentile.”

“And these fees were not attributable to enhanced services for participants, but instead defendants’ use of high-cost investment products and managers, and their continued retention of those managers even after performance results demonstrated that those high fees were not justified,” the complaint states.

Other allegations include that the defendants failed to prudently monitor the expenses charged within the plan’s index funds.

“These index funds charged fees that were up to seven-times higher than comparable alternative index funds that tracked the exact same indexes with the same level of effectiveness,” the complaint suggests. “Defendants also breached their fiduciary duties by utilizing an imprudent process to manage and monitor the plan’s target-risk funds, or ‘LifeStage funds,’ and by retaining those funds in the plan. Despite a marketplace replete with competitive target-risk fund offerings and experienced investment managers, defendants utilized an internal team to design and manage the LifeStage funds, with no previous experience managing investments for defined contribution plans.”

The complaint goes on to allege that defendants failed to prudently consider alternatives to the plan’s money market fund, “which offered only negligible returns that failed to keep pace with inflation.”

“The plan only included a money market fund, and did not offer a stable value fund as a capital preservation option, giving rise to an inference that defendants failed to prudently monitor the plan’s fixed investment option and investigate marketplace alternatives,” the complaint alleges.

Finally, the complaint alleges that defendants permitted inappropriate self-dealing and failed to properly investigate and negotiate a reasonable share of returns for the plan’s securities lending program.

“Based on this conduct and the other conduct alleged herein, plaintiffs assert claims against defendants for breach of their fiduciary duties of loyalty and prudence (Count One), engaging in prohibited transactions with a party-in-interest (Count Two), and engaging in prohibited transactions with a fiduciary (Count Three),” the complaint states. “In addition, plaintiffs assert a claim against H-E-B for failing to properly monitor the committee and its members to ensure that they complied with ERISA (Count Four).”

H.E. Butt Grocery Company has not yet responded to a request for comment.

The full text of the lawsuit is available here.