A lawsuit was filed earlier this week in U.S. District Court in New York City against Pentegra Retirement Services Inc. by two defined contribution plan participants represented by heavyweight 401k excessive fees litigator Schlichter Bogard & Denton.
The suit, Khan v. Bd. of Directors of Pentegra Defined Contribution Plan, S.D.N.Y., No. 7:20-cv-07561, claims Pentegra engaged in self-dealing and charged excessive fees in a $2.1 billion multiple employer plan (MEP) it administers for more than 27,000 employees at nearly 250 financial institutions.
This is the second excessive fee lawsuit Schlichter Bogard & Denton has filed recently against a MEP, following a May case against ADP’s MEP.
Plaintiffs Imran Khan and Joan Bullock, individually and as representatives of a class of participants and beneficiaries on behalf of the Pentegra Defined Contribution Plan for Financial Institutions, filed the new suit Sept. 15 accusing Pentegra and related defendants of breach of fiduciary duties and prohibited transactions under ERISA.
“Instead of using the Plan’s bargaining power to benefit participants and beneficiaries, Defendants acted to enrich themselves, including Pentegra, by allowing exorbitantly unreasonable expenses to be charged to participants for administration of the Plan,” the lawsuit states.
The Pentegra Defendants, the suit contends, filled the plan with overly expensive mutual funds and used plan assets for improper purposes like luxury hotel charges.
As of Dec. 31, 2018, the Plan included more than 27,000 participants and $2.1 billion in assets, placing it among the largest 0.07% of all defined contribution plans in the U.S. based on plan assets. The Plan’s massive size, the suit states, gives it enormous bargaining power to command very low administrative fees for its participants.
“The Board failed to monitor and control recordkeeping and administration fees collected from Plan assets by Pentegra, which skyrocketed at the same time that fees were declining industrywide,” the suit states. “Pentegra’s fees are grossly excessive when compared to the fees charged by other providers for similar services.”
The suit further states the Plan paid Pentegra millions of dollars each year in excessive fees for recordkeeping and administrative services, from at least 2014 until 2018 during a period of decreases in fees across the retirement plan administration services market. “According to the Plan’s Forms 5500, in 2014, when the Plan had 26,469 participants, the Plan paid Pentegra at least $9.52 million in direct recordkeeping and administration fees, or an average of $359.70 per participant. By 2018, the Plan had grown to 27,227 participants, and Pentegra’s fees had grown to $10.58 million, or $388.77 per participant,” the suit states.
Based on the Plan’s features, the nature and type of recordkeeping and administrative services provided by Pentegra, the number of Plan participants, Participating Employers, and the market, a reasonable administrative fee is not more than $1.7 million per year (an average of $65 per-participant), the suit continues. “This is significantly greater than the fee other large plans administered by prominent firms were able to obtain after requests for proposal during the period.”
To remedy these alleged breaches of duty, Plaintiffs seek to make good to the Plan all losses resulting from each breach of fiduciary duty and to restore to the Plan profits made through Defendants’ use of Plan assets. In addition, the lawsuit states, Plaintiffs seek equitable or remedial relief for the Plan as the Court may deem appropriate.
Pentegra released its first public comment on the lawsuit on Friday afternoon, with Robert D. Alin, First Senior Vice President & General Counsel at Pentegra, saying: “To date, we have not been served but are aware of the complaint. We reject the claims and intend to mount a vigorous defense against them. In fact, Pentegra is looking forward to strongly defending this lawsuit and standing up for the valuable services we provide to participating employers and their employees.”
Plaintiffs’ counsel, Schlichter Bogard & Denton, LLP, has been appointed as class counsel in over 30 other ERISA class actions regarding excessive fees in large defined contribution plans. Courts in these cases have consistently and repeatedly recognized the firm’s unparalleled success in the area of defined contribution excessive fee litigation.
The firm has won cases against some of the largest firms in the country, obtaining relief to date valued at more than $1.5 billion on behalf of hundreds of thousands of American workers and retirees.
Editor’s Note: This article was updated Friday afternoon to include Pentegra’s comment above.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
