Lawsuit Alleges Fiduciaries Allowed Excessive Fees in Cognizant 401(k)

Law firm Capozzi Adler has filed a lawsuit on behalf of a group of participants in the 401(k) plan of Cognizant Technology Solutions U.S. Corporation.

The suit alleges that the company, its Board of Directors and its 401(k)-investment committee breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA). Cognizant has not yet responded to a request for comment.

The complaint says that at the end of 2017 and 2018, the plan had more than $1 billion and $1.1 billion dollars, respectively, in assets under management that qualified it as a large plan in the defined contribution (DC) plan marketplace. It alleges that the plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments; however, the defendants did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent. The defendants are also accused of failing to control the plan’s recordkeeping costs.

The lawsuit specifically alleges that there were MassMutual-branded mutual funds offered in the plan for which there were rebranded separate investment accounts (SIAs) that were identical but lower cost. “Because the underlying funds are otherwise identical to the MassMutual version, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary,” the complaint states.

The defendants are also accused of failing to investigate the availability of lower-cost collective investment trust (CITs) for the plan’s investment menu. For example, the lawsuit says, the plan had nine MassMutual Target Date CIT funds and had more than $560 million dollars invested in these funds—”sufficient assets under management during the class period to qualify for the lower cost American Century collective trusts with the only difference being they lacked the MassMutual branding.”

The lawsuit also alleges that many of the actively managed funds in the plan had lower-cost, better performing actively managed alternatives.