Sutherland Global Services Accused of ERISA Fiduciary Breaches

A wide-ranging ERISA fiduciary breach complaint suggests the firm failed to adequately monitor fees and permitted unnecessary, excess fees on the investment menu.

A group of participants in the Sutherland Global Services Inc. 401(k) Plan has filed a proposed class action Employee Retirement Income Security Act (ERISA) lawsuit against their employer in the U.S. District Court for the Western District of New York.

The lawsuit names as defendants Sutherland Global Services Inc. and CVGAS LLC, doing business as Clearview Group. The complaint also directly names as defendants several Sutherland’s senior leaders who are plan fiduciaries, along with some 20 John and Jane Doe defendants.

For its part, CVGAS LLC is an investment manager of the plan as defined by 29 U.S.C. 1002(38). According to the complaint, “certain responsibilities in connection with the plan” were delegated to CVGAS LLC during the proposed class period, including the responsibility to select and monitor the array of investment options to be included in the plan.

Among other issues, the plaintiffs allege the defendants “failed to properly minimize the reasonable fees and expenses of the plan.”

“Defendants instead incurred expenses that were excessive, unreasonable and/or unnecessary,” the complaint states. “Defendants failed to take advantage of the plan’s bargaining power to reduce fees and expenses. Defendants failed to offer a prudent mix of investment options. Defendants impaired participants’ returns by offering actively managed retail class mutual funds as investment options instead of identical investor class mutual funds with lower operating expenses.”

According to the complaint, to the extent any fiduciary responsibilities were properly delegated, the defendants “failed to ensure that any delegated tasks were being performed prudently and loyally in accordance with ERISA.”

The complaint continues: “Defendants failed to properly undertake the requisite monitoring and supervision of fiduciaries to whom they had delegated fiduciary responsibilities. Defendants failed to discharge their fiduciary duties with the requisite expert care, skill, prudence and diligence. Defendants enabled other fiduciaries to commit breaches of fiduciary duties for which Defendants are liable.”

The plaintiffs allege that, through this conduct, the defendants violated their fiduciary obligations under ERISA and caused damages to the plan and its participants.

“Based on defendants’ publicly available statements and representations, it appears that the total administrative expenses, not including indirect compensation, incurred by the plan in 2018 exceeded $695,000 and represented expenses of more than approximately $120 per participant,” the complaint states. “In or about mid-2019, the 13 T. Rowe Price mutual funds offered by the plan were all adviser or retail class funds, as opposed to investor or institutional class funds. The adviser or retail class T. Rowe Price funds offered by the plan charge a 12b-1 fee of .25% of the fund’s net assets. A 12b-1 fee is an annual charge for marketing or distribution. Participants of the plan derive no benefit from the 12b-1 fee. … A prudent fiduciary would have selected the investor or institutional class of the mutual funds instead of the retail class of funds with the 12b-1 fee.”

In closing, the complaint demands a jury trial, rather than the typical bench trail associated with ERISA lawsuits. The full text of the complaint is here.

Sutherland Global and Clearview Group have not yet responded to requests for comment.