Compliance September 3, 2024

Salesforce Settles 401(k) Suits for $1.35M

Combined lawsuits filed in 2020 and then 2024 alleged excessive fees for a $5 billion retirement plan.

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Salesforce Inc. has settled for $1.35 million a pair of outstanding 401(k) lawsuits alleging excessive retirement plan fees. The settlement requires court approval.

The agreement brings to a close about four years of litigation across two separate lawsuits, according to a motion filed August 23 in U.S. District Court for the Northern District of California to Senior District Judge Maxine M. Chesney.

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Plaintiffs had alleged in separate suits, both filed in 2020, that Salesforce’s retirement plan committee and executives overseeing a $5 billion 401(k) plan had violated their fiduciary duty by allowing relatively high fees for certain investments and retaining some poor-performing investments. Miguel et al. v. Salesforce.com Inc. et al., filed in March 2020, and Simonelli et al. v. Salesforce.com Inc. et al. [initially filed as Villareal et al. v Salesforce.com, Inc et al.], filed in February 2024, were consolidated into one suit, as they alleged similar charges.

The class action settlement will go to more than 50,000 participants and their beneficiaries, and represents 13.5% of plaintiff’s “maximum recoverable losses as calculated by plaintiffs,” according to the filing.

“The Parties agreed to the Settlement after four years of litigation and arm’s-length negotiations by experienced counsel,” attorneys wrote in the motion. “Resolving the action at this juncture allows the parties to avoid continued and costly litigation.”

The plaintiffs in both cases are represented by attorneys with the law firm Capozzi Adler PC. Salesforce is represented in both cases by attorneys with the law firm Steptoe LLP.

Judge Chesney still needs to approve the settlement.

Plaintiffs in the consolidated lawsuits had alleged that plan managers violated the Employee Retirement Income Security Act in part by failing to select lower-cost investments, did not consider cheaper options such as collective investment trusts, and charged relatively high recordkeeping fees for the size of the plan, among other allegations.

Salesforce had countered that it met its obligations under ERISA by following prudent processes for plan decisions and administration.

Miguel was initially dismissed, but the 9th Circuit Court of Appeals revived it in 2022, arguing that the plaintiffs had grounds for the lawsuit. After further litigation in U.S. District Court for the Northern District of California, it had been scheduled to go to trial this May, but the sides announced a settlement agreement was being worked out before it reached trial.

The Salesforce 401(k) Plan held $5.696 billion in retirement assets for 50,288 retirement plan participants, as of the latest Form 5500 filing.

Compliance September 3, 2024

Raymond James Fined Over Mutual Fund Monitoring

FINRA fined two of the firm’s subsidiaries a total of $1.8 million for allegations of failing to properly review mutual fund purchases and reporting customer complaints.

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Two Raymond James Financial Inc. subsidiaries have agreed to pay the Financial Industry Regulatory Authority more than $1.8 million for allegations of failing to supervise reporting of customer complaints and failing to monitor millions of mutual fund purchases that led to higher fees.

According to a letter of acceptance and consent signed by the investment advisory and broker/dealer on August 29, Raymond James & Associates Inc. and Raymond James Financial Services Inc. will pay a series of fines in part for failing to “reasonably supervise at least 4.7 million mutual fund purchases” from January 2012 through at least December 2017.

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Those purchases, according to the letter, were made with mutual fund companies on customers’ behalf and were not added into the firm’s “automated surveillance systems.” As a result of the process breakdown, the firm failed to review about 630 direct C-share, B-share and A-share mutual fund purchases, along with mutual fund switches and swaps, that were “potentially unsuitable and inconsistent with Raymond James’ written supervisory procedures,” according to the letter. In total, that led to about $111,724 in excessive sales charges and commissions in connection with the transactions, according to FINRA.

The actions were in violation of FINRA’s Rule 3110; a predecessor, NASD Rule 3010; and FINRA Rule 2010.

Mutual funds remain important investments for defined contribution retirement plans, making up about 65% of DC assets, according to the latest data from the Investment Company Institute; the ICI has also reported a drop in fees for the investments over time.

In addition to the mutual fund-related charges, FINRA alleged that since at least January 2018, the Raymond James subsidiaries did not “reasonably supervise” timely reporting of customer complaints, including not ensuring that “firm personnel manually enter into the firms’ electronic system certain data required to make quarterly FINRA Rule 4530 filings. The firms also had not established reasonable controls to ensure that associated persons timely notify appropriate firm personnel of customer complaints.”

That fell afoul of Article V, Sections 2 and 3 of FINRA’s bylaws and of FINRA Rules 3110, 1122, 4530 and 2010.

Reporting of such information, according to FINRA, is “critical” for it to complete its regulatory oversight, which it does in partnership with the Securities and Exchange Commission, including investigating member firms and associated people. It also uses the information to alert the public through the BrokerCheck system.

Raymond James & Associates has agreed to pay a fine of $525,000 and restitution of $26,000 plus interest; Raymond James Financial Services has agreed to pay a fine of $1.3 million and restitution of more than $85,000.

The Raymond James groups did not admit to the charges via the letter and did not respond to request for comment. It was noted by FINRA, however, that they have sought to address the “deficiencies,” as of January 2023.

FINRA reserved the right to follow up with checks on the processes after the signing of the consent form.

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