Lawsuit Suggests Relationship With Recordkeeper May Have Caused Excessive Fees

The plaintiffs say fiduciaries of Koch Industries-affiliated DC plans allowed them to pay up to six times more than what similarly sized plans would have paid for such services.”

A lawsuit has been filed against Koch Industries, Koch Business Solutions and the Koch Benefits Administrative Committee alleging violations of their Employee Retirement Income Security Act (ERISA) duties with respect to certain Koch-affiliated defined contribution (DC) plans, including the Georgia-Pacific Hourly Plan, the Georgia-Pacific Savings Plan, the Koch Plan and the Flint Hills Plan.

The plaintiffs, a current and a former participant in the Georgia-Pacific Hourly Plan, claim that the defendants “failed to prudently and loyally monitor and control the plans’ recordkeeping expenses, and instead allowed the plans to pay up to six times more than what similarly sized plans would have paid for such services.”

In a statement, Koch Industries said: “We recently learned of the class-action lawsuit filed in federal court in Georgia. In the complaint, the plaintiffs’ attorneys admit that they do not have knowledge of all material facts, that they lack knowledge regarding the specifics of our decision-making processes, and that they have drawn ‘inferences’ for purposes of filing the lawsuit. We take these allegations and inferences seriously; we are reviewing the lawsuit and believe it has no merit and we will fight it vigorously. Because this is a pending legal matter we won’t be able to provide further comment.”

The proposed class action complaint notes that the plans’ assets are held in a master trust and are managed together. “From the beginning of 2014 until the end of 2018, the plans have had between approximately 53,000 and 60,000 participants, and the master trust has had between $6.5 billion and $8.1 billion in assets,” the complaint states.

According to the plaintiffs, the size of the master trust gives the defendants “significant leverage to negotiate recordkeeping expenses.” Noting that Alight has been the recordkeeper for the plans since 2009, it says the plans are charged for recordkeeping based on each one’s proportionate share of the assets in the master trust. The plaintiffs claim that if the defendants had engaged in a rigorous benchmarking analysis, either on their own or by working with an independent consultant, or if they had performed a request for proposals (RFP), they would have discovered that other recordkeepers would have provided the same services at lower cost. “These savings could have been realized through a lower per-participant monthly charge,” the complaint states.

The complaint points out that, in addition to acting as the recordkeeper for the DC plans, Alight has also administered the Koch Industries Employees’ Pension Plan since 2009 and administers Koch Industries’ online benefits portal through which all employee benefits are managed. The plaintiffs suggest that the plans’ “excessive recordkeeping expenses” are either because the defendants didn’t prudently monitor and manage them or because they “allowed participants to be charged excessive recordkeeping fees in exchange for discounts on the other services Alight was providing that Koch Industries itself should have been paying for.”

While the recordkeeping fees for the plans did decline over time—from at least $58 to $146 per participant in 2014 to $53 to $86 per participant in 2018, according to the complaint—the plaintiffs say, “a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable recordkeeping services of like quality for as low as $14 per participant during that same time period.” The plaintiffs say that is based on their investigation and cite a March federal court ruling in Moitoso v. FMR LLC.