Salesforce is the latest target of a class-action suit filed on behalf of plan participants alleging a fiduciary breach.
Echoing Tibble v. Edison International, which was argued before the Supreme Court by retirement plan litigator Jerome Schlichter, plaintiffs allege the San Francisco-based tech giant offered higher-priced mutual fund share classes in its investment menu when cheaper options were available due to the plan’s size and economies of scale.
The suit, filed by participants Tim Davis, Gregor Miguel and Amanda Bredlow, names Salesforce.com, its board of directors, CEO Marc Benioff and the investment advisory committee, among others.
More expensive active funds
“The Plan has retained several actively-managed funds as Plan investment options despite the fact that these funds charged grossly excessive fees compared with comparable or superior alternatives, and despite ample evidence available to a reasonable fiduciary that these funds had become imprudent due to their high costs,” according to the filing.
Indeed, in 2018, “19 out of 25 core investments, or almost 80% (not including money markets and investments available through brokerage link), were actively managed,” it claims.
“During the Class Period, the Plan lost millions of dollars in offering investment options that had similar or identical characteristics to other lower-priced investment options. The funds in the plan allegedly stayed relatively unchanged from 2013 until 2019.”
Again, using 2018 as an example, plaintiffs claim almost half of the plan’s core investments (including all but one of the target date funds) were “much more expensive than comparable investments found in similarly-sized plans (plans having over a billion dollars in assets). The expense ratios for these funds were in some cases up to 135% (in the case of the Fidelity Contra Class K) above the median expense ratios in the same category.”
“There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the suit concludes. “The Plan did not receive any additional services or benefits based on its use of more expensive share classes; the only consequence was higher costs for Plan participants.”
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.
