A participant in Novitex Enterprise Solutions Inc.'s 401(k) plan is suing Novitex and members of the benefits committee for allegedly breaching their fiduciary duties.
The suit accuses Novitex of failing to fully disclose the expenses and risks of the plan's investment options to participants, permitting "unreasonable expenses" to be charged to participants for plan administration, and for "selecting and retaining opaque, high-cost and poor-performing investments."
According to the lawsuit, which was filed in a U.S. District Court in Connecticut on Sept. 20, the 401(k) plan had more than $157 million in assets as of Dec. 31, 2015, and offered 12 core investment options, along with a stable value fund managed by PGIM and series of T. Rowe Price Group target-date funds.
The plaintiff argues that as of June 1, all of the investment options, with the exception of Vanguard Group's Institutional Index Fund, were actively managed, and all of the options, with the exception of the index fund and the Vanguard Inflation-Protected Securities Fund, were "costly" with expense ratios between 0.69% and 1.08%.
Novitex should have used its "large" size to access cheaper share classes for its investment options, the plaintiff adds. Additionally, "any revenue sharing paid from the investment options offered by the plan to compensate for administrative, record keeping and other services was unreasonable on its face because a retirement plan with the assets of the plan could have easily achieved lower total plan cost by adopting a zero revenue-sharing menu of investment options and/or by properly achieving all available savings from revenue sharing by establishing a properly structured and designed plan expense account that credited all revenue sharing to the benefit of the plan and equalized the amount of participant fees paid by participants of the plan," the plaintiff goes on to argue.
Regarding the stable value option, the plaintiff argues that it's "surprising, and contrary to a reasonable investor's expectations" that the stable value fund "does not offer a higher, rather than lower, crediting rate."
The plaintiff also argues that Novitex and the benefits committee allowed investment consultant UBS and record keeper Transamerica Retirement Solutions to be paid too much.
A Novitex spokeswoman declined to comment.