Lawsuit Says Provider Used Plan to Promote Its Own Funds

Associated Banc-Corp is also accused of allowing the plan to pay excessive recordkeeping fees to its subsidiary.

Participants in the Associated Banc-Corp 401(k) and Employee Stock Ownership Plan have filed an Employee Retirement Income Security Act (ERISA) lawsuit against Associated Banc-Corp and its retirement plan administrative committee for “applying an imprudent and inappropriate preference for products associated with Associated Bank within the plan, despite their poor performance and lack of traction among fiduciaries of similarly sized plans.”

The plaintiffs also allege that the defendants failed to monitor or control the plan’s recordkeeping expenses, which were paid to Associated Bank’s subsidiary, costing the plan millions of dollars in excessive administrative fees.

A spokesperson for Associated Banc-Corp told PLANADVISER the bank cannot comment on pending legislation.

The lawsuit says the defendants used the plan to promote Associated Bank’s proprietary financial products and earn profits for Associated Bank. It says the Associated Bank investment products within the plan “were overwhelmingly rejected by similarly situated fiduciaries.” The lawsuit also says the funds were poor performers.

Specifically, the complaint offers as an example the Associated Balanced LifeStage and Associated Growth Balanced LifeStage funds. It says a review of publicly filed Form 5500s for plans with more than $500 million in assets shows no other defined contribution (DC) plan that offered those funds.

In addition, the complaint includes charts showing that these funds performed less well than other funds “which had similar asset allocations and levels of risk and greater acceptance among fiduciaries of similar plans.”

The lawsuit notes that instead of removing these poorly performing Associated Bank investments, in 2017, the defendants removed a non-proprietary fund in the same asset class—the Vanguard Balanced Index Fund. “This led to a predictably poor outcome for plan participants,” the lawsuit states. “As of year-end 2015, the Associated Balanced LifeStage Fund had materially trailed the removed Vanguard fund by 2.46% and 2.67% over the prior three- and five-year periods, respectively. The performance of the Associated Growth Balanced LifeStage Fund at this time was similarly poor compared to this Vanguard option, trailing it by 0.99% and 1.69% over the prior three- and five-year periods, respectively.” The plaintiffs also note that the Vanguard Balanced Index Fund was widely held by similarly situated fiduciaries, offered in more than 60 plans with more than $500 million in assets, according to Form 5500 data.

The complaint also alleges the defendants selected a subsidiary of Associated Bank as the plan’s recordkeeper and allowed the plan “to pay nearly three times what a prudent and loyal fiduciary would have paid for such services.” The lawsuit notes that the Associated Bank plan was the only plan with more than $500 million in assets for which Associated Trust provided recordkeeping services; the average size of plans for which Associated Trust provided recordkeeping services was $27 million.

According to the complaint, as of year-end 2016, the plan had 5,858 participants. The plan’s Form 5500 reflects that it paid $803,198 to Associated Trust for recordkeeping expenses that year, and that Associated Trust Co. received approximately $37,000 in additional revenue sharing. This translates to at least $143 per participant per year in fees. In 2019, the plan paid $882,482 to Associated Trust for recordkeeping expenses, and Associated Trust Co. received an additional amount of approximately $55,000 in revenue sharing. With 6,944 participants in the plan that year, this translated to a per participant recordkeeping rate of $135 per person.

The lawsuit cites a recent study by NEPC that found the median rate for recordkeeping services for plans with between 5,000 and 10,000 participants is approximately $50 per participant. “And even the 75th percentile (the highest quartile in cost) is only about $60 per participant,” the complaint notes.

The lawsuit seeks an order compelling the defendants to personally make good to the plan all losses that the plan incurred as a result of the breaches alleged and an order requiring Associated Bank to disgorge all profits received from the plan, among other things.