Excessive Fees, Conflicts of Interest Alleged in New ERISA Lawsuit

Attorneys from the law firm Capozzi Adler have filed another excessive fee lawsuit that almost completely mirrors allegations in complaints it has recently filed—this time against automotive manufacturer Magna International of America, its retirement plan committee and other fiduciaries.

The lawsuit, filed as a class action on behalf of participants and beneficiaries of the Magna Group of Companies Retirement Savings Plans, says 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. Instead, the complaint says, “Defendants abdicated their fiduciary oversight, allowing Principal Trust Company (the plan’s ‘trustee’ or ‘Principal’) to lard the plan with funds managed by the trustee and/or its affiliates.” Principal is not named as a defendant in the lawsuit.

The lawsuit also argues that the structure of Magna’s plan “is rife with potential conflicts of interest” because Principal and its affiliates were placed in positions that allowed them to reap profits from the plan at the expense of plan participants. According to the complaint, the plan’s investment consultant was Principal Financial; the recordkeeper was also Principal Financial, and the trustee was Principal Trust. It also notes that 17 of the 20 funds offered by the plan “were funds bearing Principal’s name.”

The plaintiffs say Magna and other retirement plan fiduciaries breached their duty of loyalty under the Employee Retirement Income Security Act (ERISA) by failing to adequately supervise Principal and its affiliates and ensure that the fees charged by Principal and its affiliates were reasonable and in the best interests of the plan and its participants.

As in the previously filed lawsuits, the current complaint notes that the funds in the plan have stayed relatively unchanged since 2014. The complaint includes a chart of comparisons as of 2018 that the plaintiffs say shows funds in the plan were much more expensive than comparable funds found in similarly sized plans. The plaintiffs also say prudent retirement plan fiduciaries will search for and select the lowest-priced share class available, but allege that in several instances during the class period, the defendants failed to prudently monitor the plan to determine whether it was invested in the lowest-cost share class available for the plan’s mutual funds.

In addition to failing to investigate the availability of lower-cost collective trusts or separate accounts, the complaint says plan fiduciaries failed to use lower-cost passively and actively managed funds in the plan’s investment menu.

The complaint also repeats statements made in the previous lawsuits, such as, “It is not prudent to select higher cost versions of the same fund even if a fiduciary believes fees charged to plan participants by the ‘retail’ class investment were the same as the fees charged by the ‘institutional’ class investment, net of the revenue sharing paid by the funds to defray the plan’s recordkeeping costs,” the complaint adds. Citing the case of Tibble v. Edison, the plaintiffs say the plan’s fiduciaries should not “choose otherwise imprudent investments specifically to take advantage of revenue sharing.”

The lawsuit also includes a claim that the defendants failed to monitor or control the plan’s recordkeeping expenses.

A spokesperson for Magna International of America says the company cannot comment on active litigation.