Compliance

ERISA Lawsuit Filed Against Starwood Hotels

The case questions the hotel chain's 401(k) plan fees and investment choices.

By Rebecca Moore editors@strategic-i.com | December 21, 2016
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A class action complaint has been filed against Starwood Hotels & Resorts Worldwide, Inc. accusing it of serially breaching its Employee Retirement Income Security Act (ERISA) fiduciary duties in the management, operation and administration of its employees’ 401(k) plan, the Starwood Hotels & Resorts Worldwide, Inc. Savings & Retirement Plan.

The complaint notes that the United States Supreme Court held in Tibble v. Edison International that plan fiduciaries have an ongoing duty to monitor investments. Participants allege that Starwood had the bargaining power to obtain and maintain low fees. However, Starwood did not exercise this power for many years. At about the same time as the Tibble decision, Starwood managed to cut the fees of its fund offerings in half. Fees were reduced an average of 40 basis points (.40%). This means that for the prior five years, an unnecessary $20 million in fees were incurred by plan participants—40 basis points times $1 billion in assets equals $4 million per year in excess fees or $20 million over a five year period, the plaintiffs calculate.

The lawsuit also cites a survey by NEPC, an independent investment consulting firm, which found that the median recordkeeping costs of 113 plans was $64 per plan participant in 2015. The Starwood Plan has consistently averaged recordkeeping and administrative fees that are close to $100, more than 50% higher than the median cost of $64. As a Plan with assets well over $1 billion, Starwood could have negotiated substantially lower recordkeeping and administrative fees, the participants allege.

The complaint also states that Starwood engaged in the practice of revenue-sharing with the investment funds it offered plan participants. This means that funds paid Starwood monies for their inclusion in the investment menu. However, Starwood does not disclose the amount of revenue sharing it received.

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