Jamie Ann Hayes, QPFC, C(k)P, AIF(r)

Jamie Ann Hayes, QPFC, C(k)P, AIF(r), Partner and Consultant of FiduciaryFirst, specializes in Employer Retirement Plan Fiduciary Services and Corporate Pension Consulting.

ERISA Lawsuits Highlight Risks for Fiduciaries

ERISA Lawsuits Highlight Risks for Fiduciaries

Recent class action suits filed against Home Depot, First Group America, Aon Hewitt, Financial Engines and Alight seek millions in restitution.

Two class action suits — one involving Home Depot and the other FirstGroup America — allege that failure to adequately perform oversight of outside fund advisors violated the sponsors’ fiduciary duties and ask for millions in restitution. According to the complaint, the Home Depot action alone, if certified, would incorporate more than 300,000 current and former employees.

The Home Depot complaint names not only Home Depot Inc., but also its Administrative and Investment committees and their members. Outside advisors Financial Engines Advisors and Alight Financial Advisors and plan record keeper Aon Hewitt are also named. The 98-page complaint lays out an exhaustive case, which alleges a number of failures in performance of fiduciary duties, including:

  • Home Depot allowed plan participants to pay unreasonable fees to the advisors.
  • The advisors provided a “robo-advisory” service and did not personally talk with plan participants.
  • The plan offered a menu of investment choices that significantly underperformed the market.
  • Financial Engines collected some $22 million in fees from 2012 to 2016 and kicked 25%-35% of those fees back to Aon Hewitt, which levied its own fees on participants.
  • Damages to the plan participants is in excess of $140 million.
  • Each Home Depot defendant (including members of the named committees) is personally liable to make good losses to the Plan.

In the case of FirstGroup America, the company retained Aon Hewitt as its advisors at least as early as 2009. The complaint alleges that, at first, Hewitt provided independent advice and recommended diverse funds from a variety of fund managers. However, when Hewitt launched its own investment funds, FirstGroup replaced the funds it had previously recommended with Hewitt’s own underperforming house funds.

FirstGroup became the first employer in the country to include Hewitt’s funds in its 401(k) plan and transferred 90% of the plan’s assets — more than $250 million — into the new Hewitt funds. Since then, the complaint alleges, the Hewitt funds have underperformed their market segments and underperformed the funds formerly offered in FirstGroup’s 401(k).

The plaintiffs charge that Hewitt violated the U.S. Employee Retirement Income Security Act of 1974 (ERISA) by recommending its own funds and that FirstGroup breached its duties to plan participants by accepting the recommendation and failing to adequately monitor the performance of the funds.

As a plan fiduciary, you are responsible — and could be held personally liable — for lapses that affect participants. While the outcome of these lawsuits is pending at this time, they serve as a reminder of the importance of diligent performance of fiduciary duties to minimize risk to participants, plan sponsors and advisors, and offer the following lessons:

  • The duty to closely monitor the advice your participants are getting and the costs and performance of the funds on your investment menu cannot be dodged.
  • Nothing can substitute for providing personalized advice for each participant — advice that takes into account his or her individual circumstances.
  • If you retain an outside advisor, follow up often with participants to ensure they feel their needs for advice and assistance are being met.
  • Continuously monitor the performance of funds offered by your plan — not just for what they’re producing, but also how they compare to other similar choices in the marketplace.
  • Monitor the business relationships of any vendors you use to ensure they are not improper and do not violate ERISA.






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