Compliance

Aon Hewitt Targeted in Kickback Lawsuit Filed by Caterpillar Plan

The central claims in the proposed class action suggest plaintiffs feel they overpaid significantly for advisory services, with the excess payments essentially amounting to kickbacks returned to the defendants.

By John Manganaro editors@assetinternational.com | January 31, 2017
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The latest example of Employee Retirement Income Security Act (ERISA) industry litigation targets Aon Hewitt for, in the words of plaintiffs, permitting excessive fees to be paid and then taking kickbacks.

The challenge was filed in the United States District Court for the Northern District of Illinois, Eastern Division. Lead plaintiff Cheryl Scott commenced the action on behalf of herself and similarly situated participants in the Caterpillar 401(k) Retirement Plan. Named as defendants are a number of Aon Hewitt companies, including Aon Hewitt Financial Advisors, Hewitt Financial Services and Hewitt Associates.

According to the text of the complaint, Scott is a retiree and a participant in the Caterpillar plan, while defendant Hewitt Associates serves and has served as the recordkeeper. Another provider, Financial Engines, is also named in the text of the suit but is not actually challenged as a defendant.

The central claims in the proposed class action suggest plaintiffs feel they overpaid significantly for the services provided by Financial Engines, with the excess payments essentially amounting to kickbacks returned to defendant Hewitt.

As the text of the lawsuit lays out, “Scott and the other plan participants who signed up for the service received advice from the third-party firm Financial Engines Advisors. For periods prior to 2014, Financial Engines provided services directly to plaintiff and other Caterpillar plan participants and was paid directly from participants’ accounts. But the fee for those services was significantly higher than it should have been because the agreement between defendants and Financial Engines required Financial Engines to kick back to defendant Hewitt a significant percentage of the fees charged by Financial Engines, even though Hewitt and its sister company co-defendants did not perform any investment advisory or other material services in exchange for the payment they received.”

According to the complaint, such a payment-sharing arrangement violates federal laws designed to protect retirees.

The text of the suit further suggests changes made to the plan in recent years were not enough to ensure participants were getting a good deal: “In 2014, the business arrangement between defendants and Financial Engines was restructured and re-branded so that defendant Aon Hewitt Financial Advisors, ostensibly providing the investment advice services to plaintiff and other Caterpillar plan participants, directly charged to participants’ accounts the fees for those services. But the re-branding of those services was cosmetic only, and, through a sub-advisory agreement between [Aon Hewitt Financial Advisors] and Financial Engines, all of the investment advice services provided to plaintiff and other Caterpillar plan participants continued to be provided by Financial Engines … Importantly, the financial arrangement between defendants and Financial Engines did not change.”

Plaintiffs boldly go on to state that even after the change, Aon Hewitt knowingly charge the “same excessive fee that had previously been charged by Financial Engines, kept the same amount that had previously been kicked back to defendants by Financial Engines, and paid the balance of the fee to Financial Engines … From all that appears, the principal, if not the only, reason for the re-branding of the service was to conceal the illegal kick-back.”

NEXT: More context from the suit 

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