Overpaying at Trader Joe’s? Who’d of thought? The popular grocer finds itself under fire for failing to leverage the scale of its retirement plan for better participant pricing, a familiar charge first filed by high-profile tort lawyer Jerome Schlichter a decade ago.
In the latest case, Trader Joe’s allegedly failed to use the inherent bargaining power in its $1.6 billion-plus plan to its employees’ benefit—namely the “inclusion of low-cost administrative and investment management services and well-performing, low-cost investment funds,” in the menu line-up.
“Trader Joe’s chose inappropriate, higher-cost mutual fund share classes and caused the Plan to pay unreasonable and excessive fees for recordkeeping and other administrative services,” according to the court filing.
Plaintiffs named Capital Research, the plan’s recordkeeper and the investment adviser to American Funds, in the suit.
“Trader Joe’s, as the Plan Sponsor, breached its fiduciary duty of prudence and loyalty and mismanaged the Plan by paying excessive recordkeeping fees to the Plan’s recordkeeper, Capital Research & Management Co. (“Capital Research”) by failing to limit Capital Research’s asset-based fees to a reasonable amount,” it added. “This breach cost the Plan millions of dollars over the course of the relevant time period.”
What participants paid
The dispute centers on participant pricing and the plan’s supposed revenue-sharing arrangement, and the filing notes that Capital Research received a reported $183,075 in direct compensation for recordkeeping services in 2018, and that over the past six years, the plan paid recordkeeping fees in the amount of roughly $140 per participant.
“A reasonable recordkeeping fee for the Plan is $40 per plan participant,” attorneys wrote, and the asset-based nature of the fees were singled out with a colorful metaphor.
“One commentator likened this fee arrangement to hiring a plumber to fix a leaky gasket but paying the plumber not on actual work provided but based on the amount of water that flows through the pipe. If asset-based fees are not monitored, the fees skyrocket as more money flows into the Plan.”
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.
I work for Trader Joe’s, and every year they contribute 10% of our pay to a Capital Group 401k. A couple days ago, it was announced they they will be cutting this contribution in half (5%) for any employee who has worked there less than TEN years. I have to assume this is somehow related. A major portion of their workforce is now looking at quitting in the short-term.