A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the Middle District of Florida, naming a set of defendants associated with TriNet HR.
TriNet may already be familiar to some retirement plan industry practitioners, as the firm is a provider of full-service human resources (HR) solutions for small- and medium-size businesses. The new proposed class action complaint alleges that TriNet has breached its requirements under ERISA in various ways in the provision of multiple 401(k) retirement plans to its own employees.
At a high level, the plaintiffs allege that the defendants failed to objectively and adequately review the plans’ investment portfolios with due care to ensure that each investment option was prudent, in terms of cost. The also allege that the plans’ fiduciaries inappropriately maintained certain funds in the plans despite the availability of identical or materially similar investment options with lower costs and/or better performance histories.
The plaintiffs in this new case are represented by a law firm known as Capozzi Adler, which is quickly gaining a reputation in the retirement plan services space as a serial filer of very similar proposed class action lawsuits. Using language repeated verbatim in many other Capozzi Adler lawsuits, the new complaint states that one indication of the defendants’ alleged failure to prudently monitor the plans’ funds is that the plans have retained several actively managed funds despite the fact that these funds charged “grossly excessive fees compared with comparable or superior alternatives.” The new lawsuit, like the others, also suggests that TriNet has failed to use the lowest-cost share classes available to the plan.
“It is not prudent to select higher cost versions of the same fund even if a fiduciary believes fees charged to plan participants by the ‘retail’ class investment were the same as the fees charged by the ‘institutional’ class investment, net of the revenue sharing paid by the funds to defray the plan’s recordkeeping costs,” the complaint states, again using the exact same language as the other lawsuits. “Fiduciaries should not choose otherwise imprudent investments specifically to take advantage of revenue sharing.”
Another common feature of the Capozzi Adler lawsuits—repeated here—is the use of charts comparing the fees of various passive versus active investments, supported by generalized arguments that active investments are categorically imprudent in the context of long-term retirement plan investing.
“While higher-cost mutual funds may outperform a less-expensive option, such as a passively managed index fund, over the short term, they rarely do so over a longer term,” the complaint suggests. “Indeed, funds with high fees on average perform worse than less expensive funds, even on a pre-fee basis.”
It should be noted that ERISA does not require plan sponsors to select the cheapest or even the best-performing funds available. Rather, the law requires that plan fiduciaries implement prudent and loyal processes for the selection and monitoring of investments. Because of this, the new complaint and its predecessors seek to present the offering of actively managed investments and retail-type share classes of mutual funds that include revenue sharing as evidence of imprudence and disloyalty.
The new complaint also includes allegations that the plan fiduciaries have failed to prudently and loyally monitor the recordkeeping fees paid by the plan and its participants.
TriNet has not yet responded to a request for comment about the new complaint, the full text of which is available here.