A $140 million ERISA class-action lawsuit has been filed against The Home Depot on behalf of more than 200,000 current and former retirement plan participants.
According to the complaint, The Home Depot has selected “multiple poorly-performing funds for its 401k plan, allowed investment advisers to charge its employees unreasonable fees, and turned a blind eye to a kickback scheme between an investment adviser and the plan’s recordkeeper.
The consequences, according to counsel for the plaintiffs, are that plan participant earns $100,000 less in retirement savings than employees in top-rated retirement plans of a similar size. The $100,000 disparity, they allege, translates to an additional 18 years of work per participant.
“ERISA’s fiduciary standards are strict and exacting,” David Sanford, chairman of law firm Sanford Heisler Sharp said in a statement. “Home Depot retained too many poor-performing investment advisory options on the Plan which were highly detrimental to the retirement savings of plan participants. Home Depot and the committees should be held to the highest standard as fiduciaries; instead, in this case, they fall below the lowest standard.”
With over $6 billion in assets, Home Depot’s plan is one of the largest 401(k) plans in the country. Yet, according to the complaint, many of the plan’s investment options “regularly underperform their benchmarks and comparable investment options. Accordingly, plaintiffs claim, Home Depot fails to prudently select investment options and monitor their performance.”
Plaintiffs further allege that Home Depot arranged for the investment advisor Financial Engines to sell investment advisory services to participants. Rather than providing personal investment advice, Financial Engines offers what is called “robo advice,” in which “a robot creates cookie-cutter portfolios based on minimal participant input.”
According to the complaint, Home Depot allowed Financial Engines to charge plan participants advisory fees that were in some cases double the competitive rate.
“To add insult to injury, Home Depot condoned an arrangement in which Financial Engines kicked-back a portion of its fee to the plan’s recordkeeper. Although Home Depot replaced Financial Engines with Alight Financial Advisors in July 2017, Alight simply re-hired Financial Engines as a ‘sub-advisor.’ Thus, says the complaint, the new arrangement added another layer of inefficiency to the plan’s fee structure.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Does this impact 401k participants who chose to not use financial engines?