Lawsuit Questions Use of Revenue Sharing by Ricoh USA

According to the complaint, participants in the company’s 401(k) plan were harmed by paying higher fees than participants in similarly sized plans.

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. 

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“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.

Coca-Cola Consolidated Settles ERISA Fiduciary Lawsuit for $3.5M

The settlement includes both monetary and nonmonetary aspects.

Coca-Cola Consolidated has agreed to settle an Employee Retirement Income Security Act lawsuit filed against the company and its board of directors in the U.S. District Court for the Western District of North Carolina.

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The settlement includes a monetary payment of $3.5 million to the class of plaintiffs, who are participants or beneficiaries of the company’s defined contribution retirement plan.

In April 2021, a federal judge moved forward the lawsuit against Coca-Cola Consolidated, its board of directors and its benefits committee. The underlying complaint alleges that the defendant breached its fiduciary responsibilities by mismanaging the plan’s investment lineup.

The lawsuit specifically challenges the fact that the plan used the actively managed Fidelity Freedom Funds target-date fund suite rather than the index suite. The plaintiffs say the active suite is too “high risk” to be suitable for the plan’s participants. They said it has higher fees than the index suite, and other plan fiduciaries and investors lost faith in the active suite. The plaintiffs lodged similar allegations with respect to the Carillon Eagle Small Cap Growth Fund Class R5 and the T. Rowe Price Mid-Cap Value Fund. They also allege the recordkeeping and administrative costs of the plan were excessive.

According to a motion filed by the plaintiffs in favor of the proposed settlement agreement, the parties in the case have engaged in significant discovery efforts, including the exchange of discovery requests and the production of more than 30,000 pages of documents related to plan administration and the defendants’ alleged conduct. The defendants have taken plaintiffs’ depositions, and the plaintiffs have taken depositions of numerous fact witnesses and sought discovery from third parties. In addition, the parties exchanged expert reports related to issues of liability and damages.

Following mediation sessions, the parties reached an agreement in principle to resolve the action on January 18, 2022, and they have since worked to document the details in a formal settlement agreement. The settlement provides that, in exchange for dismissal of the action and a release of all claims, the defendants will make payment in an aggregate amount of $3.5 million into a qualified settlement fund to be allocated to participants, former participants, beneficiaries and alternate payees of the plan.

According to case documents, the settlement also includes “meaningful non-monetary relief related to the ongoing management and administration of the plan,” though the specific details of this non-monetary relief are yet to be published by the court. In similar settlements, such elements have included agreements to retain an independent fiduciary to oversee a plan’s investment menu and agreements to periodically utilize a request for proposal process to benchmark administrative services and their commensurate fees.

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