Participants in a multiple-employer 401(k) plan sued several defendants, alleging ERISA violations, ranging from conflicts of interest to keeping poor-performing, high-fee investment options.
The plaintiffs "suffered harm to their individual accounts" because the sponsor selected and retaining higher-cost versions of the plan's investments, said the complaint filed Feb. 16 in a U.S. District Court in Los Angeles, in the case of Lauderdale et al. vs. NFP Retirement Inc. et al.
NFP Retirement doing business as 401k Advisors is the investment adviser to Wood Group U.S. Holdings, Houston, the 401(k) plan sponsor. Wood Group also is a defendant. It is a wholly owned subsidiary of John Wood Group, based in Aberdeen, Scotland. The parent isn't a defendant.
The sponsor should have provided the "lowest cost shares or versions of the plan's investments," the complaint said. This approach would have enabled participants' accounts to have had "fewer investment management fees deducted and would have been of higher value in light of those fees and the investment return on those fees."
The complaint assailed the relationship between the sponsor and NFP. "Based on conflicted advice, (the sponsor) added NFP's affiliated collective investment trusts to the plan that were managed by an untested investment manager (flexPATH Strategies)," the complaint said. "NFP acted under a profound conflict of interest in recommending the use of its affiliated investments in the plan."
The alleged conflict occurred because NFP was acting as the plan's fiduciary investment adviser "while also seeking to grow its collective investment trust business through flexPATH Strategies and maximize its revenue through investment advisory fees collected from the flexPATH funds," the complaint said.
"NFP had an incentive to recommend investment vehicles offered by flexPATH Strategies because it receives additional compensation when its clients invest in those vehicles, such as in the form of bonuses and other incentives for the individual NFP investment advisers whose clients invest in affiliated products or services," the complaint said.
The complaint also alleged that the sponsor and NFP "caused the plan to pay unreasonable investment management fees," adding that "despite the fact that lower-cost shares for the exact same investment option were available to the plan," the sponsor chose and kept higher-cost shares.
“NFP Retirement and flexPATH Strategies intend to defend against plaintiffs’ allegations vigorously, and are confident that the compliance protocols and business processes that are currently in place not only drive better outcomes and value for our clients but also meet all state and local statutes and regulations,” Stephanie Smith, an NFP spokeswoman, said in an email. “ The lawsuit contains numerous inaccuracies pertaining to our fees, services and processes.”
A representative from Wood Group didn’t return requests for comment.