Lawsuit Questions Use of Revenue Sharing by Ricoh USA

Former Ricoh USA employees have filed a lawsuit against the company, its board of directors and its 401(k) plan investment committee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act.

The complaint alleges that the company and investment committee failed to objectively and adequately review the plan’s investment portfolio to ensure that the cost of each investment option was not excessive. Additionally, the complaint alleges that the plan sponsor failed to control the plan’s recordkeeping and administrative costs. 

“The plan had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments,” the complaint states. “Defendants, however, 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 plaintiffs have asserted two claims against defendants: breach of fiduciary duty of prudence and failure to monitory plan fiduciaries.

As of 2020, the plan had more than 18,619 participants and more than $2.1 billion in assets under management, making it a jumbo size plan, the complaint states. The plaintiffs say Ricoh should have been able to negotiate a recordkeeping cost from a low of $14 per participant to the high $20 range and not have paid more than $35 per participant, the plaintiffs state.

Per-participant charges in the Ricoh plan were $103.54 in 2020, and $86.14 in 2019, according to the complaint. It says the costs for Ricoh’s 401(k) recordkeeping and administrative fees are paid by a revenue sharing arrangement. Revenue sharing involves payments made by investments within the plan to the plan’s recordkeeper or to the plan directly, for recordkeeping and trustee services.

“Using revenue sharing to potentially cover additional fees resulted in a worst-case scenario for the plan’s participants because it saddled plan participants with above-market recordkeeping fees,” the complaint states. “The plans’ fiduciaries decided to pay for administration and recordkeeping in this case by adding 9 basis points to the expense ratio of each fund in the plan. This had a devastating effect on plan participants because as the assets in the plan increased, the recordkeeping and administration charges increased exponentially.”

The complaint faults plan fiduciaries for failing to remain informed about overall trends in the marketplace, including fees being paid by other plans and recordkeeping rates that are available, by conducting a request for proposals to determine if these costs appeared high in relation to the general marketplace and similar plans. The plaintiffs suggest that an RFP should be conducted by the plan sponsor frequently if fee benchmarking reveals the recordkeepers compensation exceeds other plans.

“Because the plan paid yearly amounts in recordkeeping fees that were well above industry standards each year over the class period, there is little to suggest that defendants conducted an appropriate RFP at reasonable intervals – or certainly at any time prior to 2016 through the present – to determine whether the plan could obtain better recordkeeping and administrative fee pricing from other service providers given that the market for recordkeeping is highly competitive, with many vendors equally capable of providing a high-level service,” the compliant states.

Ricoh USA says it does not comment on pending litigation.