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Compliance January 31, 2020
Excessive Fee Suit Targets Navy Defense Contractor Serco
The lawsuit resembles many others that have been filed under the Employee Retirement Income Security Act (ERISA), suggesting an employer permitted excessive recordkeeping and mutual fund fees in its 401(k) plan.
Reported by John Manganaro
A new Employee Retirement Income Security Act (ERISA) lawsuit, filed in the U.S. District Court for the Eastern District of Virginia, Alexandria Division, targets the Navy defense contractor Serco Inc.
In the text of the proposed class action compliant, Serco is accused of failing to provide its 401(k) plan participants with the most cost-effective mutual fund shares, among other issues. According to the complaint, for at least 21 of the 30 mutual funds share classes available within the plan, the same issuer offered a different share class (unselected by the plan) which charged lower fees and consistently achieved higher returns.
“The plan, however, inexplicably failed to select these lower fee-charging and better-return producing share classes,” the complaint states. “As well, the administrative fees charged to plan participants were consistently greater than the fees of more than 90% of comparable 401(k) plans, when fees are calculated as cost per participant or when fees are calculated as a percent of total assets.”
The complaint goes on to state these “investment options and unreasonable fees cannot be justified.”
“Their presence confirms more than simply sloppy business practice; their presence is the result of a breach of the fiduciary duties owed by Serco Inc. to plan participants and beneficiaries,” the lawsuit states. “Prudent fiduciaries of 401(k) plans continuously monitor administrative fees against applicable benchmarks and peer groups to identify unreasonable and unjustifiable fees.”
The complaint further states the plan’s expenses are nearly double those of the mean among 26 comparator plans with more than 10,000 participants.
“Similarly, plaintiffs allege, among a per group of 22 plans with an asset range between $250 million and $500 million, the mean expenses were 0.41% of assets under management, which again compared unfavorably with the plan’s fees representing (0.81%) of assets,” the complaint states.
Serco has not yet responded to a request for comment about the lawsuit.