Last week, McCaffree Financial Corp., a participating employer in the ADP TotalSource Retirement Savings Plan, filed an excessive fee lawsuit on behalf of the multiple employer plan and a class of similarly situated participating employers against ADP. Also named as defendants are ADP TotalSource Group, the plan’s administrative committee and its members, and NFP Retirement in its capacity as the plan’s investment adviser.
This week, a second lawsuit has emerged representing the interests of a proposed class of plan participants. The second suit largely mirrors the first in its allegations of prohibited transactions, excessive fees and other fiduciary breaches, but it is even more comprehensive and stretches beyond 150 pages.
The first lawsuit, which includes plan sponsors and fiduciaries as plaintiffs, alleges the ADP defendants “have allowed unreasonable recordkeeping/administrative expenses to be charged to the plan; failed to adequately monitor the plan’s recordkeeper and its affiliates, who the ADP defendants have permitted to design an investment menu unreasonably favorable to them despite the recordkeeper’s clear conflicts of interest; and, along with NFP Retirement, selected, retained and/or otherwise ratified high-cost and poorly performing investments, when more prudent alternative investments were available.”
The new lawsuit repeats those claims, though it includes a far greater amount of generalized exposition about the duties allegedly owed by fiduciaries to participants and beneficiaries under the Employee Retirement Income Security Act (ERISA). For example, approximately 11 pages are dedicated to describing in general terms how prudent fiduciaries negotiate reasonable recordkeeping fees, monitor all sources of revenue paid to plan recordkeepers, and regularly monitor plan fees and compare them to competitive market rates. Significant space is also dedicated to detailing in general terms ERISA’s self-dealing and prohibited transactions provisions.
In this respect, the lawsuit resembles the numerous others that have been filed by the highly active law firm Schlichter, Bogard & Denton. In previous conversations with PLANADVISER, the firm’s ERISA litigation leader, Jerry Schlichter, has clearly signaled an intent to continue with this litigation push and to use these lawsuits as a means to create reform in the employer-sponsored retirement plan industry. While few debate the need to ensure retirement plan participants get a good deal on investments, administration and recordkeeping, defense attorneys and industry analysts debate the broader impact of so much ERISA-focused litigation. Some believe that fully prudent and responsible plan sponsors’ legitimate fear of becoming a target of litigation has stifled innovation and the willingness to adopt new solutions that could serve participants well.
This new lawsuit includes 12 formal counts that cite a variety of ERISA’s specific provisions. One new area being explored relative to some earlier suits is the notion that the defendants allegedly breached their fiduciary duties and engaged in prohibited transactions by allowing the plan’s service providers to collect and use confidential plan participant data for profit. In some recently resolved lawsuits, Schlichter’s firm has had success securing settlements that prohibit such data-based cross selling.
NFP has declined to comment about the new complaint, while ADP provided the following statement: “We were made aware of this filling recently and are currently reviewing it. However, it is not uncommon to see similar complaints filed following an initial claim. TotalSource works diligently to fully and properly discharge all of its fiduciary and other duties. We are confident that the ADP TotalSource Retirement Savings Plan offers an excellent retirement savings vehicle for our TotalSource clients and their employees. As this is a matter of litigation, we cannot provide any further information at this time.”
The full text of the second complaint is available here.