UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF WISCONSIN
`GREEN BAY DIVISION
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Case No. 20-cv-1560
`
`
`CLASS ACTION COMPLAINT
`FOR CLAIMS UNDER 29 U.S.C.
`§ 1132(a)(2)
`
`
`
`COMPLAINT
`
`
`
`
`
`
`LORIE M. GUYES, individually,
`and as representative of a Class of
`Participants and Beneficiaries of the
`Nestle 401(k) Savings Plan,
`
`
`Plaintiff,
`
`v.
`
`
`NESTLE USA, INC.,
`
`and
`
`BOARD OF DIRECTORS OF
`NESTLE USA, INC.,
`
`and
`
`JOHN AND JANE DOES 1-30,
`
`Defendants
`
`
`
`COMES NOW Plaintiff, Lorie M. Guyes, individually and as representative of a Class of
`
`Participants and Beneficiaries on behalf of the Nestle 401(k) Savings Plan (the “Plan”), by her
`
`counsel, WALCHESKE & LUZI, LLC, as and for a claim against Defendants, alleges and asserts to
`
`the best of her knowledge, information and belief, formed after an inquiry reasonable under the
`
`circumstances, the following:
`
`
`
`
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 1 of 42 Document 1
`
`

`

`INTRODUCTION
`
`1.
`
`The essential remedial purpose of the Employee Retirement Income Security Act
`
`(“ERISA”) is “to protect the beneficiaries of private pension plans.” Nachwalter v. Christie, 805
`
`F.2d 956, 962 (11th Cir. 1986).
`
`2.
`
`The law is settled that ERISA fiduciaries have a duty to evaluate fees and expenses
`
`when selecting investments as well as a continuing duty to monitor fees and expenses of selected
`
`investments and remove imprudent ones. Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828 (2015); 29
`
`U.S.C. §1104(a)(1)(A) (fiduciary duty includes “defraying reasonable expenses of administering
`
`the Plan;” 29 C.F.R. §2250.404a-1(b)(i) (ERISA fiduciary must give “appropriate consideration to
`
`those facts and circumstances” that “are relevant to the particular investment.” It is for good reason
`
`that ERISA requires fiduciaries to be cost-conscious:
`
`Expenses, such as management or administrative fees, can sometimes significantly
`reduce the value of an account in a defined-contribution Plan.” Tibble, 135 S. Ct.
`at 1826, by decreasing its immediate value, and by depriving the participant of the
`prospective value of funds that would have continued to grow if not taken out in
`fees.
`
`Sweda v. Univ. of Pa., 923 F.3d 320, 328 (3d Cir. 2019).
`
`3.
`
`Defendants, Nestle USA, Inc. (“Nestle”), the Board of Directors of Nestle USA,
`
`Inc. (“Board Defendants”), and John and Jane Does 1-30 (collectively, “Defendants”), are ERISA
`
`fiduciaries as they exercise discretionary authority or discretionary control over the 401(k) defined
`
`contribution pension plan – known as the Nestle 401(k) Savings Plan (“The Plan”) – that it sponsors
`
`and provides to its employees.
`
`4.
`
`Plaintiff alleges that during the putative Class Period (October 9, 2014 through the
`
`date of judgment), Defendants, as fiduciaries of the Plan, as that term is defined under ERISA, 29
`
`U.S.C. §1002(21)(A), breached the duties they owed to the Plan, to Plaintiff, and to the other
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 2 of 42 Document 1
`
`

`

`participants of the Plan by, among other things: (1) authorizing the Plan to pay unreasonably high
`
`fees for recordkeeping and administration (RK&A); (2) authorizing the Plan to pay unreasonably
`
`high fees for managed account services; and (3) engaging in self-dealing with regard to
`
`administration of the Plan.
`
`5.
`
`These objectively unreasonable RK&A and managed account fees, as well as the
`
`self-dealing, cannot be justified. Defendants’ failures breached the fiduciary duties they owed to
`
`Plaintiff, Plan Participants, and beneficiaries. Prudent fiduciaries of 401(k) Plans continuously
`
`monitor fees against applicable benchmarks and peer groups to identify objectively unreasonable
`
`and unjustifiable fees. Defendants did not engage in a prudent decision-making process, as there is
`
`no other explanation for why the Plan paid these objectively unreasonable fees for RK&A and
`
`managed account services. Engaging in self-dealing is also inconsistent with fiduciary duties of
`
`loyalty owed by Defendants to the Plaintiff, Plan Participants, and beneficiaries.
`
`6.
`
`To remedy, Plaintiff brings this action on behalf of the Plan under 29 U.S.C.
`
`§1132(a)(2) to enforce Defendants’ liability under 29 U.S.C. §1109(a) to make good to the Plan all
`
`losses resulting from their breaches of fiduciary duty.
`
`JURISDICTION AND VENUE
`
`7.
`
`This Court has subject matter jurisdiction in this ERISA matter under 28 U.S.C.
`
`§1331 and pursuant to 29 U.S.C. §1332(e)(1), which provides for federal jurisdiction of actions
`
`brought under Title I of ERISA, 29 U.S.C. §1001 et seq.
`
`8.
`
`This Court has personal jurisdiction over Defendants because they transact business
`
`in this District, reside in this District, and have significant contacts with this District, and because
`
`ERISA provides for nationwide service of process.
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 3 of 42 Document 1
`
`

`

`9.
`
`Venue is appropriate in this District within the meaning of 29 U.S.C. §1132(e)(2)
`
`because some or all of the violations of ERISA occurred in this District and Defendants reside and
`
`may be found in this District. Venue is also proper in this District pursuant to 28 U.S.C. §1391
`
`because Defendants do business in this District and a substantial part of the events or omissions
`
`giving rise to the claims asserted herein occurred within the District.
`
`10.
`
`In conformity with 29 U.S.C. §1132(h), Plaintiff served the Complaint by certified
`
`mail on the Secretary of Labor and the Secretary of the Treasury.
`
`PARTIES
`
`11.
`
`Plaintiff, Lorie M. Guyes, is a resident of the State of Wisconsin and currently
`
`resides in Appleton, Wisconsin, and during the Class Period, was a participant in the Plan under
`
`29 U.S.C. § 1002(7).
`
`12.
`
`In approximately April 2008, Plaintiff commenced employment with Nestle USA
`
`in the position of General Laborer.
`
`13.
`
`14.
`
`On or about April 13, 2020, Plaintiff’s employment with Nestle ended.
`
`Plaintiff has Article III standing to bring this action on behalf of the Plan because
`
`she suffered an actual injury to her own Plan account in which she is still a Participant, that injury
`
`is fairly traceable to Defendants’ unlawful conduct, and the harm is likely to be redressed by a
`
`favorable judgment.
`
`15.
`
`It is well settled, moreover, that recovery may be had for the Class Period before
`
`Plaintiff personally suffered injury, as that turns on ERISA §502(a)(2) on which his claim rests.
`
`This claim is brought in a representative capacity on behalf of the Plan as a whole and remedies
`
`under ERISA §409 protect the entire Plan. Courts have recognized that a plaintiff with Article III
`
`standing, like Plaintiff, may proceed under ERISA §502(a)(2) on behalf of the Plan and all
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 4 of 42 Document 1
`
`

`

`participants in the Plan. Plaintiff may seek relief under ERISA §502(a)(2) that sweeps beyond his
`
`own injury and beyond any given investment he has held as a Participant in the Plan.
`
`16.
`
`The named Plaintiff and all Participants in the Plan suffered ongoing financial harm
`
`as a result of Defendants’ continued imprudent and unreasonable investment and fee decisions made
`
`with regard to the Plan.
`
`17.
`
`Plaintiff did not have knowledge of all material facts (including, among other
`
`things, the cost of the Plan’s recordkeeping services compared to similarly-sized plans, the Plan’s
`
`leverage to negotiate lower recordkeeping expenses, the cost of the Plan’s managed account service
`
`compared to similarly situated plans, and the Plan’s leverage to negotiate managed account
`
`expenses) necessary to understand that Defendants breached their fiduciary duties and engaged in
`
`other unlawful conduct in violation of ERISA, until shortly before this suit was filed.
`
`18.
`
`Further, Plaintiff did not have actual knowledge of the specifics of Defendants’
`
`decision-making processes with respect to the Plan (including Defendants’ processes for selecting
`
`and monitoring the Plan’s recordkeeper and Defendants’ processes for selecting and monitoring the
`
`Plan’s managed account service provider) because this information is solely within the possession
`
`of Defendants prior to discovery. For purposes of this Complaint, Plaintiff has drawn reasonable
`
`inferences regarding these processes based upon (among other things) the facts set forth above.
`
`19.
`
`The named Plaintiff and all participants in the Plan, having never managed a large
`
`401(k) Plan such as the Plan, lacked actual knowledge of reasonable fee levels and prudent
`
`alternatives available to such Plans.
`
`20.
`
`Nestle USA Inc. (“Nestle”), under the Plan Sponsor name of Nestle USA, Inc.
`
`Savings Plan Administration, is located at 30500 Bainbridge Road, Solon, OH 44139-2216. In this
`
`Complaint, “Nestle” refers to the named defendant and all parent, subsidiary, related, predecessor,
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 5 of 42 Document 1
`
`

`

`and successor entities to which these allegations pertain. Nestle is composed of seven operating
`
`companies: Nestlé USA, Nestlé Waters North America, Nestlé Purina, Gerber, Nestlé Health
`
`Science, Nestlé Professional, and Nespresso. Nestlé is home to more than 200 U.S. locations in 34
`
`states, including 68 manufacturing facilities. Nestle employs more than 36,000 people in the United
`
`States.
`
`21.
`
`Nestle acted through its officers, including the Board Defendants, and their
`
`members (John and Jane Does 1-10), to perform Plan-related fiduciary functions in the course and
`
`scope of their business. Nestle appointed other Plan fiduciaries, and accordingly had a concomitant
`
`fiduciary duty to monitor and supervise those appointees. For these reasons, Nestle is a fiduciary of
`
`the Plan, within the meaning of 29 U.S.C. § 1002(21)(A).
`
`22.
`
`Nestle is both the Plan sponsor and the Plan Administrator of the Nestle Inc. 401(k)
`
`Savings Plan.
`
`23.
`
`As the Plan Administrator, Nestle is a fiduciary with day-to-day administration and
`
`operation of the Plan under 29 U.S.C. § 1002(21)(A). It has authority and responsibility for the
`
`control, management, and administration of the Plan in accord with 29 U.S.C. § 1102(a). Nestle has
`
`exclusive responsibility and complete discretionary authority to control the operation, management,
`
`and administration of the Plan, with all powers necessary to properly carry out such responsibilities.
`
`24.
`
`Nestle in its Plan Administrator capacity, as well as individuals who carried out
`
`Plan functions (John and Jane Does 11-20), are collectively referred to herein as the “Plan
`
`Administrator Defendants.”
`
`25.
`
`To the extent that there are additional officers and employees of Nestle who
`
`are/were fiduciaries of the Plan during the Class Period, or other individuals who were hired as
`
`investment managers for the Plan during the Class Period, the identities of whom are currently
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 6 of 42 Document 1
`
`

`

`unknown to Plaintiff, Plaintiff reserves the right, once their identities are ascertained, to seek leave
`
`to join them to the instant action. Thus, without limitation, unknown “John and Jane Doe”
`
`Defendants 21-30 include, but are not limited to, Nestle officers and employees who are/were
`
`fiduciaries of the Plan within the meaning of ERISA Section 3(21)(A), 29 U.S.C. § 1002(21)(A),
`
`during the Class Period.
`
`26.
`
`The Plan is a “defined contribution” pension Plan under 29 U.S.C. §1102(2)(A) and
`
`1002(34), meaning that Nestle’s contribution to the payment of Plan costs is guaranteed but the
`
`pension benefits are not. In a defined contribution Plan, the value of participants’ investments is
`
`“determined by the market performance of employee and employer contributions, less expenses.”
`
`Tibble, 135 S. Ct.at 1826. Thus, the employer has no incentive to keep costs low or to closely
`
`monitor the Plan to ensure every investment remains prudent, because all risks related to high fees
`
`and poorly performing investments are borne by the participants.
`
`27.
`
`The Plan currently has about $4,200,000,000 in assets entrusted to the care of the
`
`Plan’s fiduciaries. The Plan had substantial bargaining power regarding the fees and expenses that
`
`were charged against participants’ investments. Defendants, however, did not sufficiently attempt
`
`to reduce the Plan’s expenses or exercise appropriate judgment to monitor each investment option
`
`to ensure it was a prudent choice.
`
`28. With 39,472 participants in the year 2018, the Plan had more participants than
`
`99.97% of the defined contribution Plans in the United States that filed 5500 forms for the 2018
`
`Plan year. Similarly, with $4,292,939,117 in assets in the year 2018, the Plan had more assets than
`
`99.97% of the defined contribution Plans in the United States that filed 5500 forms for the 2018
`
`Plan year.
`
`
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 7 of 42 Document 1
`
`

`

`ERISA’S FIDUCIARY STANDARDS
`
`29.
`
`ERISA imposes strict fiduciary standards of loyalty and prudence on Defendants
`
`as a Plan fiduciaries. 29 U.S.C. §1104(a)(1) provides in relevant part:
`
`[A] fiduciary shall discharge his duties with respect to a Plan solely in the interest
`of the participants and beneficiaries and –
`
`(A) for the exclusive purpose of:
`
`(i) providing benefits to participants and their beneficiaries; and
`(ii) defraying reasonable expenses of administering the Plan; [and]
`
`(B) with the care, skill, prudence, and diligence under the circumstances then
`prevailing that a prudent man acting in a like capacity and familiar with such
`matters would use in the conduct of an enterprise of like character and with like
`aims.
`
`30. With certain exceptions, 29 U.S.C. §1103(c)(1) provides in relevant part:
`
`29 U.S.C. §1109 provides in relevant part:
`
`[T]he assets of a Plan shall never inure to the benefit of any employer and shall be
`held for the exclusive purposes of providing benefits to participants in the Plan and
`their beneficiaries and defraying reasonable expenses of administering the Plan.
`
`31.
`
`Any person who is a fiduciary with respect to a Plan who breaches any of the
`responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter
`shall be personally liable to make good to such Plan any losses to the Plan resulting
`from each such breach, and to restore to such Plan any profits of such fiduciary
`which have been made through use of assets of the Plan by the fiduciary, and shall
`be subject to such other equitable or remedial relief as the court may deem
`appropriate, including removal of such fiduciary.
`
`32.
`
`Under ERISA, fiduciaries that exercise any authority or control over Plan assets,
`
`including the selection of Plan investments and service providers, must act prudently and for the
`
`exclusive benefit of participants in the Plan, and not for the benefit of third parties including service
`
`providers to the Plan such as recordkeepers and those who provide investment products. Fiduciaries
`
`must ensure that the amount of fees paid to those service providers is no more than reasonable.
`
`DOL Adv. Op. 97-15A; DOL Adv. Op. 97-16A; see also 29 U.S.C. §1103(c)(1) (Plan assets “shall
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 8 of 42 Document 1
`
`

`

`be held for the exclusive purposes of providing benefits to participants in the Plan and their
`
`beneficiaries and defraying reasonable expenses of administering the Plan”).
`
`33.
`
`“[T]he duty to conduct an independent investigation into the merits of a particular
`
`investment” is “the most basic of ERISA’s investment fiduciary duties.” In re Unisys Savings Plan
`
`Litig., 74 F.3d 420, 435 (3d Cir. 1996); Katsaros v. Cody, 744 F.2d 270, 279 (2nd Cir. 1984)
`
`(fiduciaries must use “the appropriate methods to investigate the merits” of Plan investments).
`
`Fiduciaries must “initially determine, and continue to monitor, the prudence of each investment
`
`option available to Plan Participants.” DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 423 (4th Cir.
`
`2007) (emphasis original); 29 C.F.R. §2550.404a-1; DOL Adv. Opinion 98-04A; DOL Adv.
`
`Opinion 88-16A. Thus, a defined contribution Plan fiduciary cannot “insulate itself from liability
`
`by the simple expedient of including a very large number of investment alternatives in its portfolio
`
`and then shifting to the participants the responsibility for choosing among them.” Hecker v. Deere
`
`& Co., 569 F.3d 708, 711 (7th Cir. 2009). Fiduciaries have “a continuing duty to monitor
`
`investments and remove imprudent ones[.]” Tibble, 135 S. Ct. at 1828-29.
`
`34.
`
`“Wasting beneficiaries’ money is imprudent. In devising and implementing
`
`strategies for the investment and management of trust assets, trustees are obligated to minimize
`
`costs.” Uniform Prudent Investor Act §7.
`
`35.
`
`29 U.S.C. §1132(a)(2) authorizes Plan Participants to bring a civil action for
`
`appropriate relief under 29 U.S.C. §1109.
`
`DEFINED CONTRIBUTION INDUSTRY
`
`36.
`
`Over the past three decades, defined contribution plans have become the most
`
`common employer-sponsored retirement plan. A defined contribution plan allows employees to
`
`make pre-tax elective deferrals through payroll deductions to an individual account under a plan.
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 9 of 42 Document 1
`
`

`

`Among many options, employers may make contributions on behalf of all employees and/or make
`
`matching contributions based on the employees’ elective deferrals. Employees with money in a
`
`plan are referred to as “Participants.”
`
`Recordkeeping and Related Administrative Services
`
`37.
`
`Recordkeeping and related administrative (“RK&A”) services are necessary for all
`
`defined contribution plans. These services include, but are not limited to, those related to
`
`maintaining plan records, tracking participant account balances and investment elections,
`
`transaction processing, call center support, participant communications, and trust and custody
`
`services. Defendants received a standard package of RK&A services.
`
`38.
`
`Third-party service providers, often known as “recordkeepers,” provide RK&A
`
`services on behalf of a defined contribution plan. Some recordkeepers provide only recordkeeping
`
`and related services and some recordkeepers are subsidiaries of financial services and insurance
`
`companies that distribute mutual funds, insurance products, and other investment options.
`
`39.
`
`The market for defined contribution recordkeeping services is highly competitive,
`
`particularly for a Plan like Defendants’ with large numbers of participants and large amounts of
`
`assets.
`
`40.
`
`Since at least the mid-2000s, the fee that RK&A service providers have been
`
`willing to accept for providing RK&A services has decreased.
`
`41.
`
`The underlying cost to a recordkeeper of providing the RK&A services to a defined
`
`contribution plan is primarily dependent on the number of participant accounts in the Plan rather
`
`than the amount of assets in the Plan.
`
`42.
`
`The incremental cost for a recordkeeper to provide RK&A services for a
`
`participant’s account does not materially differ from one participant to another and is generally not
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 10 of 42 Document 1
`
`

`

`dependent on the balance of the participant’s account.
`
`43.
`
`Recordkeepers for relatively larger defined contribution plans, like the Plan here,
`
`experience certain efficiencies of scale that lead to a reduction in the per-participant cost as the
`
`number of participants increase because the marginal cost of adding an additional participant to a
`
`recordkeeping platform is relatively low. These economies of scale are inherent in all recordkeeping
`
`arrangements for defined contribution plans. When the number of participants with an account
`
`balance increases in a defined contribution plan, the recordkeeper is able to spread the cost of
`
`providing recordkeeping services over a larger participant base, thereby reducing the unit cost of
`
`delivering services on a per-participant basis.
`
`44.
`
`Therefore, while the total cost to a provider for RK&A services increases as more
`
`participants join the Plan, the cost per participant to deliver the services decreases.
`
`45.
`
`Since at least the early 2000s, plan fiduciaries and their consultants and advisors
`
`have been aware of this cost structure dynamic for RK&A providers.
`
`46.
`
`Since at least the early 2000s, Defendants should have been aware of this cost
`
`structure dynamic for RK&A providers.
`
`47.
`
`Sponsors of defined contribution plans contract for RK&A services separately from
`
`any contracts related to the provision of investment management services to plan participants.
`
`48.
`
`The investment options selected by plan fiduciaries often have a portion of the total
`
`expense ratio allocated to the provision of recordkeeping services that the recordkeeper provides
`
`on behalf of the investment manager, e.g., RK&A services.
`
`49.
`
`As a result, RK&A service providers often make separate contractual arrangements
`
`with mutual fund providers. For example, RK&A providers often collect a portion of the total
`
`expense ratio fee of the mutual fund in exchange for providing services that would otherwise have
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 11 of 42 Document 1
`
`

`

`to be provided by the mutual fund.
`
`50.
`
`The fees described in the aforementioned paragraph are known in the defined
`
`contribution industry as “revenue sharing.”
`
`51.
`
`For example, if a mutual fund has a total expense ratio fee of 0.75%, the mutual
`
`fund provider may agree to pay the RK&A provider 0.25% of the 0.75% total expense ratio fee that
`
`is paid by the investor in that mutual fund (in this context the Plan Participant). That 0.25% portion
`
`of the 0.75% total expense ratio fee is known as the “revenue sharing.”
`
`52.
`
`In the context of defined contribution plans, the amount of revenue sharing is
`
`deemed to be the amount of revenue paid by participants that is allocable to RK&A services and,
`
`in some cases, other services provided to the Plan. The difference between the total expense ratio
`
`and the revenue sharing is known as the “Net Investment Expense to Retirement Plans.”
`
`53.
`
`In the context of defined contribution plans, when a Plan adopts prudent and best
`
`practices, the Net Investment Expense to Retirement Plans is the actual amount a Plan Participant
`
`pays for the investment management services provided by a portfolio manager.
`
`54.
`
`In the context of defined contribution plans, when multiple share classes of a mutual
`
`fund are available to a retirement plan, the share class that provides the lowest Net Investment
`
`Expense to Retirement Plans is often referred to as the “Most Efficient Share Class.”
`
`55.
`
`Providers of Retirement Plan Services, including RK&A services, typically collect
`
`their fees through direct payments from the Plan or through indirect compensation such as revenue
`
`sharing, or some combination of both.
`
`56.
`
`Regardless of the pricing structure that the Plan Fiduciary negotiates with the
`
`recordkeeper, the amount of compensation paid to the recordkeeper for the RK&A services must
`
`be reasonable.
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 12 of 42 Document 1
`
`

`

`57.
`
`As a result, plan fiduciaries must understand the total dollar amounts paid to their
`
`RK&A provider and be able to determine whether the compensation is reasonable by understanding
`
`what the market is for the RK&A services received by the Plan.
`
`58.
`
`Because RK&A fees are actually paid in dollars and because of the cost dynamic
`
`noted in the aforementioned paragraphs, the fees paid for RK&A services are evaluated and
`
`compared on a dollar per participant basis.
`
`59.
`
`It is well known among retirement Plan consultants and advisors (who often act as
`
`co-fiduciaries to the Plan Fiduciaries) that, all else being equal, a Plan with more participants can
`
`and will receive a lower effective per participant fee when evaluated on a per participant basis.
`
`60.
`
`During the Class Period, Defendants knew and/or were aware that a Plan with more
`
`participants can and will receive a lower effective per participant fee when evaluated on a per
`
`participant basis.
`
`61.
`
`During the Class Period, Defendants knew and/or were aware that the Plan should
`
`have received a lower effective per participant fee when evaluated on a per participant basis.
`
`Managed Account Service Fees
`
`62.
`
`Plan Fiduciaries of a defined contribution Plan have a continuing and regular
`
`responsibility to select and monitor all investment options they make available to Plan Participants.
`
`63. Managed account service fees have recently emerged as another growing category
`
`of fees. The market for these three service providers is large and competitive.
`
`64.
`
`Defendants also caused Plan Participants to pay excessive managed account service
`
`fees during the Class Period. A managed account is an investment service under which a participant
`
`pays a fee to have a managed account provider invest her account in a portfolio of preselected
`
`investment options. Managed account providers “generally offer the same basic service—initial
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 13 of 42 Document 1
`
`

`

`and ongoing investment management of a 401(k) plan participant’s account based on generally
`
`accepted industry methods.” The United States Government Accountability Office (“GAO”),
`
`401(K) PLANS: Improvements Can Be Made to Better Protect Participants in Managed Accounts,
`
`at 14 (June 2014), available at https://www.gao.gov/assets/670/664391.pdf. Assets are generally
`
`managed based upon a program designed by the managed account provider that customizes the
`
`participant’s portfolio based upon factors such as their risk tolerance and the number of years before
`
`they retire.
`
`65.
`
`Participants who sign up for managed account services are generally charged an
`
`annual fee that is a percentage of the participant’s account balance. Typically, though not always,
`
`pricing is tiered. For example, the first $50,000 of assets may be charged a certain fee level, the
`
`next $150,000 in assets at a lower level, and all remaining assets at a still-lower level.
`
`66.
`
`The participant has no control over the rate they are charged—fee levels are
`
`determined at the plan level through a contractual agreement between the managed account provider
`
`and the fiduciaries of the plan. When managed account services were first introduced roughly 25
`
`years ago, these fees were generally fixed by either the managed account provider or the
`
`recordkeeper, leaving little or no room for negotiation. However, for at least the past decade, larger
`
`plans have been able to negotiate multiple facets of the fees charged by managed account providers.
`
`This includes both the asset levels at which particular tiers start (i.e., the highest tier applies to the
`
`first $25,000 versus the first $100,000) as well as the percentage charged at each fee level.
`
`67.
`
`As with any service provider, one of the most important factors when selecting a
`
`managed account provider is fees. Managed account services have historically been expensive
`
`compared to other alternatives, such as target date funds. But, in recent years, a number of managed
`
`account service providers such as Fidelity, Morningstar, Financial Engines, and Great-West have
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 14 of 42 Document 1
`
`

`

`emerged that are capable of providing a high level of managed account services at competitive rates.
`
`As this industry segment has matured over the past decade, expenses have declined, and
`
`competition has increased. As a result, fees for managed account services have been declining for
`
`a number of years.
`
`68.
`
`As with recordkeeping services, prudent fiduciaries will regularly monitor the
`
`amount of managed account service fees the plan is paying and will conduct periodic cost
`
`benchmarking to determine whether those amounts are consistent with the amounts paid by other
`
`similarly situated plans. As with recordkeeping, if the benchmarking analysis demonstrates that the
`
`plan is paying higher fees than other similarly situated plans, a prudent fiduciary will solicit bids
`
`from other managed account service providers.
`
`THE PLAN
`
`69.
`
`Started on October 1, 1990, the Plan now has over 39,000 participants and assets
`
`of approximately $4,200,000,000. More specifically, at the end of the year 2018, the Plan had
`
`approximately 39,472 participants and approximately $4,292,939,117 in assets.
`
`70.
`
`At all relevant times, the Plan’s fees were excessive when compared with other
`
`comparable 401(k) Plans offered by other sponsors that had similar numbers of plan participants,
`
`and similar amounts of money under management. The fees were also excessive relative to the
`
`RK&A services received. These excessive fees led to lower net returns than participants in
`
`comparable 401(k) Plans enjoyed.
`
`71.
`
`Defendants’ mismanagement of the Plan, to the detriment of Plan Participants and
`
`beneficiaries, breached the fiduciary duties of prudence and loyalty in violation of 29 U.S.C. §1104.
`
`STANDARD OF CARE FOR PRUDENT FIDUCIARIES
`SELECTING & MONITORING RECORDKEEPERS
`
`A Plan Fiduciary is required to fully understand all sources of revenue received by
`
`72.
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 15 of 42 Document 1
`
`

`

`its RK&A service provider/recordkeeper. It must regularly monitor that revenue to ensure that the
`
`compensation received by the recordkeeper is and remains reasonable for the services provided.
`
`73.
`
`Prudent Plan Fiduciaries ensure they are paying only reasonable fees for RK&A
`
`services by soliciting competitive bids from other service providers to perform the same services
`
`currently being provided to the Plan. This is not a difficult or complex process and is performed
`
`regularly by prudent Plan Fiduciaries. Plan Fiduciaries need only request a bid from salespeople at
`
`other service providers. For Plans with as many participants as Defendants’ Plan, most
`
`recordkeepers would require only the number of participants and the amount of the assets to provide
`
`a quote while others might only require the number of participants.
`
`74.
`
`Prudent Plan Fiduciaries have all of this information readily available and can
`
`easily receive a quote from other service providers to determine if the current level of fees is
`
`reasonable.
`
`75.
`
`Having received bids, the prudent Plan Fiduciary can negotiate with its current
`
`provider for a lower fee and/or move to a new provider to provide the same (or better) services for
`
`a competitive reasonable fee.
`
`76.
`
`Prudent plan Fiduciaries follow this same process to monitor the fees of retirement
`
`Plan advisors and/or consultants as well as any other covered service providers.
`
`77.
`
`After the revenue requirement is negotiated, the plan Fiduciary determines how to
`
`pay the negotiated RK&A fee. The employer/Plan Sponsor can pay the recordkeeping fee on behalf
`
`of participants, which is the most beneficial to plan Participants. If the employer were paying the
`
`fee, the employer would have an interest in negotiating the lowest fee a suitable recordkeeper would
`
`accept. Usually, however, the employer decides to have the Plan (Plan Participants) pay the
`
`recordkeeping fee instead. If the recordkeeping fee is paid by Plan Participants, the Plan Fiduciary
`
`Case 1:20-cv-01560-WCG Filed 10/09/20 Page 16 of 42 Document 1
`
`

`

`can allocate the negotiated recordkeeping fee among participant accounts at the negotiated per-
`
`participant rate, or pro-rata based on account values, among other less common ways.
`
`78.
`
`In other words, if the Plan negotiates a per participant revenue threshold, e.g.,
`
`$45.00, the Plan does not need to require that each participant pay $45.00. Rather, the Plan
`
`Fiduciary could determine that an asset-based fee is more appropriate for Plan Participants and
`
`allocate the RK&A fee pro rata to participants. For example, a 10,000-participant Plan with a $45.00
`
`revenue threshold would pay $450,000 for RK&A services. If the Plan had $450,000,000 in assets,
`
`then the $450,000 would work out to 10 basis points. Accordingly, the Plan Fiduciary could allocate
`
`the $450,000 to Plan Participants by requiring that each participant pay 10 basis points.
`
`79.
`
`In an asset-based pricing structure, the amount of compensation received by the
`
`service provider is based on a per