Compliance

New 401(k) Excessive Fee Suit Filed Against Delta Air Lines

Among the charges is that, prior to 2011, the plan included too many, and duplicative, investment options.

By Rebecca Moore editors@plansponsor.com | December 23, 2016
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Participants in Delta Air Line’s Delta Family Care Savings Plan have filed a proposed class action lawsuit against the company, the plan’s administrative committee and other fiduciaries alleging violations of the Employee Retirement Income Security Act (ERISA) regarding excessive fees.

The complaint says given its size and prominent place in the marketplace, the plan had and has the ability to demand and obtain lower cost investment options from providers. “The Defendants, however, did not provide the participants in the Plan with the lowest cost investment options that easily were available to them. This resulted in a failure of the most fundamental of the Defendants’ fiduciary duties to the Plan participants,” the lawsuit says.

Examples given in the complaint include: Defendants selected the fund Janus Forty S, with an expense ratio of 1.00, as an investment option, when the equivalent fund Janus Forty I, with an expense ratio of .60, was available; Janus Research T, with an expense ratio of .95, when Janus Research I, with an expense ratio of .78 was available; and PIMCO Low Duration ADM, with an expense ratio of .71, when PIMCO Low Duration D, with an expense ratio of .56 was available.

The plaintiffs cited research studies to argue that funds with higher fees are all but indefensible: they not only empirically fail to beat the market on a consistent basis, they are in fact mathematically unable to do so because the high fees cut into returns significantly, especially over time. “Essentially, high fees are apparently more likely to indicate bad funds than good ones,” the lawsuit says.

In addition, plaintiffs’ contend that a typical 401(k) plan offers roughly fourteen investment options, and note that defendants offered at least 200 investment options in the plan prior to 2011. The plaintiffs allege that many of these were functionally equivalent or otherwise duplicative and added nothing but confusion to the set of options available to participants. Even within each class of investments, defendants offered far more investment options than was reasonable. In addition, the plaintiffs say the defendants failed to monitor the investment options they offered, and instead allowed numerous poorly performing investment options to remain in the pool of available options year after year.

The lawsuit alleges that defendants’ conduct cost plaintiffs and the proposed class millions of dollars needlessly expended on excessive fees and costs.

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