Latest 401(k) Excessive Fee Suit Targets Matthews International

Reading through the latest spate of lawsuits alleging excessive fees in retirement plans can seem like déjà vu—identical wording with different defendant and fund names plugged in.

The latest suit against Matthews International Corp., its board of directors and its retirement plan board in many ways is no exception. However, rather than including just a small section about excessive recordkeeping fees toward the end of the complaint—which is the normal course for most of these lawsuits—such arguments are featured early and prominently in this matter, and the complaint strongly criticizes the recordkeeper Wells Fargo by name, even though it is not a defendant in the case.

Similarly to other recently filed lawsuits,  the complaint alleges that the defendants breached the Employee Retirement Income Security Act (ERISA) fiduciary duties they owed to the plan and its participants by, among other things, authorizing the plan to pay unreasonably high fees for recordkeeping; failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

In addition, it says the defendants failed to use share classes for mutual funds offered by the plan that charged lower fees and consistently achieved higher returns. The complaint also says the defendants generally chose for the plan “more costly ‘actively managed funds’ rather than ‘index funds’ that offered equal or better performance as substantially lower cost.”

The complaint notes that the plaintiff did not individually select funds for her 401(k) plan, but instead selected an approach based on risk and then had her portfolio constructed by the defendants, with the help of the recordkeeper and/or consultants.

The complaint lists a range of services provided by recordkeepers to defined contribution (DC) plans and claims that, “Many of these services can be provided by recordkeepers at very little cost. In fact, several of these services, such as managed account services, self-directed brokerage and loan processing, are often a profit center for recordkeepers.” The lawsuit alleges that the defendants failed to prudently manage and control the plan’s recordkeeping costs by failing to track the recordkeeper’s expenses; identify all fees, including direct compensation and revenue sharing; and perform a request for proposals (RFP) process at regular intervals.

The complaint says Matthews International paid higher recordkeeping fees to both Wells Fargo, the recordkeeper for its 401(k) plan since 2017, and former recordkeeper PNC in the years 2014 through 2016. After that is when the lawsuit diverges into a negative discussion about Wells Fargo.

“Recordkeeping costs are almost certainly higher due to undisclosed revenue sharing arrangements,” the complaint says. It then says that Wells Fargo, on its Form 5500s, checked the box that it charges fees in addition to disclosed recordkeeping fees that it chose not to disclose.

The complaint pointed to fines Wells Fargo has paid unrelated to its recordkeeping business before noting that the recordkeeper has been sued by its own 401(k) plan participants.

Once the lawsuit refocuses on the allegations against the named defendants, it specifically calls out the use of a Wells Fargo stable value fund in the plan, saying “there are other almost identical products from other vendors” with lower fees.

“Defendants had the opportunity and duty to evaluate this investment in advance; this is not a case of judging an investment with the benefit of hindsight. As an ERISA fiduciary, defendants had an obligation to monitor the fees and performance of the insurance companies’ stable value fund and to remove or replace it where a substantially identical investment option could be obtained from the same provider at a lower cost,” the complaint states.

Wells Fargo declined to comment about the lawsuit. At the time of publication, Matthews International had not yet responded to a request for comment.