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. NEXT: Ignoring investment allocations and no stable value fund