Yes, you did read it before. But this is not that. This is another retirement plan lawsuit. Reetz v. Lowe’s Companies, Inc. describes a disturbingly common pattern of conduct. An investment advisor, record keeper or other fiduciary sees a way to “leverage” that relationship in an even more profitable way.
More alarming still is the plaintiff’s statement, way down in paragraph 62 of the Complaint to the effect that it was hard to find out about what happened. Here are some thoughts about how you can protect yourself. Please share your ideas, too.
Allegations against Aon Hewitt
Lowe’s Corp. took the advice of its investment consultant, Aon Hewitt, and moved more than $1 billion in 401(k) plan assets out of eight existing funds and into the advisor’s proprietary Hewitt Growth Fund. At the time, the Hewitt Growth Fund was allegedly new, untested, underperforming and generally unpopular in the marketplace. As of the date of the transfer, the Growth Fund reported negative investment returns (-0.67 percent); the eight replaced investment funds had a generally healthy return of 7.3 percent. Lowe’s 401(k) Plan participants lost millions of dollars.
Aon Hewitt, on the other hand, did quite nicely. The $1 billion infusion of cash into the Hewitt Growth Fund constituted a four-fold increase in the size of the fund.
Plan participants complain that Aon Hewitt acted in its own interest, rather than in the best interest of those who had entrusted their retirement savings to the Plan. Furthermore Lowe’s Corp, and the various committees charged with monitoring Plan investments acted irresponsibly by allowing this to happen.
Since 2015, according to a recent study by the Center for Retirement Research at Boston College, excessive fees and self-dealing lawsuits have dominated the lawsuits brought against 401(k) plans. It seems to be a growing problem and may, as some editorial writers suggest, spring from an erosion of financial fiduciary standards.
What are the Fiduciary Standards?
Under ERISA, a plan fiduciary is a person or entity that:
• exercises discretionary control or authority over plan management or plan assets;
• has discretionary authority or responsibility for the administration of a plan; or
• provides investment advice to a plan for compensation or has the authority or responsibility to do so.
The key concept is “discretion.” Plan fiduciaries may include plan trustees, plan administrators, and members of a plan's investment and advisory committees. Each fiduciary may be individually liable for a breach of duty by any other fiduciary, if he or she knew or should have known about the misdeed.
An ERISA fiduciary must “discharge plan duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defray reasonable expenses of administering the plan.” In ERISA cases, the Supreme Court has focused on the word “solely” in the law, emphasizing that it should be understood to exclude all selfish interests.
ERISA fiduciary standards have, so far, been very strictly construed. But all not all retirement savings vehicles are covered by ERISA rules in the same way that the Lowe’s 401(k) Plan is. Individual retirement accounts are not, for example. Recent circuit court decisions and administrative actions appear to have created some confusion about if and how those strict standards will apply in the future.
Whether this has this contributed to the recent spate of retirement plan lawsuits that feature self-dealing fiduciaries is an interesting question. But the more urgent issue for most plan participants is not a wonky legal query, but how to protect their money.
Practical Steps to Protecting your 401k Investment
Every participant in an ERISA plan should receive, probably electronically, a document known as a “Summary Plan Description” or “SPD.” Mostly these are legal boilerplate, but towards the end, it should name the plan fiduciaries, or direct you to a resource that will tell you who the fiduciaries are. Know who your plan fiduciaries are because they are the people and institutions who owe you a legal duty.
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The SPD should also tell you how your money is invested. Together with your individual statements, (and if you are not receiving individual statements, that is cause for alarm), you should be able to get a rough idea of how those investments are preforming. Negative numbers are bad. In the Lowe’s Complaint, 7.3 percent was understood as all right.
Everything is probably fine, but if you are troubled by what you discover, look for a lawyer who focuses on ERISA plans and breach of fiduciary cases. It is a highly specialized area of the law.