Safeway’s got some rotten produce—at least according to one of its 401(k) plan participants. In a clear example to 401(k) advisors of the dangers of buying another 401(k) business, book of business, record keeper, whatever, Safeway is being sued for allegedly breaching its fiduciary duty.
The issue arose when J.P. Morgan Retirement Plan Services managed the Safeway plan. J.P. Morgan Retirement Plan Services was then purchased by Great-West, which made it part of its Empower subsidiary.
Specifically, plan participant Dennis M. Lorenz claims negligence in Safeway’s selection of JPM Smartretire Passiveblend Funds as its target date option, but Great West is also named. The suit further alleges:
- The JPM Smartretire Passiveblend Funds charged participants in the Plan who invested in such funds between 47 and 50 basis points (0.47% – .50%) of the amount invested as a management fee.
- By comparison, the Blackrock Lifepath Index funds which were replaced by the JPM Smartretire Passiveblend Funds charged only a 13 basis point fee.
- Alternatives to the JPM Smartretire Passiveblend Funds that were readily available as of 2011 also charged substantially lower fees. Target date funds offered by Vanguard, for example, charge about a 15 basis point fee.
- Net of management fees, the Vanguard target date funds substantially outperformed the comparable JPM Smartretire Passiveblend Funds.
Additionally, the suit alleges an untoward revenue sharing arrangement.
“The management fee charged to participants for investing in the JPM Smartretire Passiveblend Funds included a 20 basis point revenue sharing payment to JPMRPS and later Great West,” according to court filings. “This revenue sharing payment was purportedly compensation to JPMRPS/Great-West for record-keeping services in connection with the Plan but, as set forth below, resulted in compensation to JPMRPS/Great West far in excess of reasonable compensation for such services.”
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.
when will the madness stop? A participant is suing over 30 basis points.