Aon Hewitt has been sued by a participant in a Caterpillar Inc. 401(k) plan for its role as the plan’s service provider and record keeper, alleging Aon Hewitt breached its fiduciary duties through its fee-sharing practices with Financial Engines, a provider of financial advice.
The costs of the financial advice were “significantly higher” for plan participants because Aon Hewitt allegedly required Financial Engines to send to it a “significant percentage of the fees” charged for the advice, according to the lawsuit filed Jan. 27 in U.S. District Court in Chicago.
In the case, Scott vs. Aon Hewitt Financial Advisors LLC et al., neither Financial Engines nor Caterpillar was cited as a defendant. (The other defendants are Aon Hewitt units Hewitt Financial Services LLC and Hewitt Associates LLC d/b/a Aon Hewitt.)
The plaintiff, Cheryl Scott, is seeking class-action status. The Caterpillar 401(k) Retirement Plan had $2.48 billion in assets as of Dec. 31, 2015, according to the most recent 11-K filing with the Securities and Exchange Commission.
The lawsuit said Financial Engines initially provided services directly to the Caterpillar plan participants, who were charged directly from their retirement accounts.
“The fee for those services was significantly higher than it should have been” due to the initial fee arrangement between Aon Hewitt and Financial Engines. Aon Hewitt “did not perform any investment advisory or other material services in exchange for the payment” it received, the lawsuit said.
The arrangement was changed in 2014 to “hide from public scrutiny” the fees that Financial Engines was returning to Aon Hewitt, the lawsuit alleged.
One defendant, Aon Hewitt Financial Advisors LLC was hired to “ostensibly” provide investment advice services to plan participants, with Financial Engines acting as a subadviser. “Yet, in reality, for all intents and purposes, Financial Engines continued to do all the actual work related to the investment advisory services” that Ms. Scott and other participants received, the lawsuit claimed.
“We do not comment on litigation,” MacKenzie Lucas, an Aon Hewitt spokeswoman, wrote in an email. “Our model has always been and will continue to be fully transparent about all sources of revenue and fees we receive, so that plan sponsors and plan participants fully understand the cost of their plans.”