Compliance July 1, 2022

High Managed Account Fees Alleged in Kellogg ERISA Lawsuit

The plaintiffs say the defendants failed to leverage the size of Kellogg’s plan to secure reasonable fees for recordkeeping and managed account services.

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A new Employee Retirement Income Security Act lawsuit has been filed in the U.S. District Court for the Western District of Michigan, naming as defendants the Kellogg Company and various boards and administrative committees involved in the operation of the company’s defined contribution retirement plan.

The main allegation leveled in the complaint is that the defendants breached their fiduciary duty of prudence by requiring the plan to pay excessive recordkeeping fees and managed account fees, and by failing to timely remove their allegedly high-cost recordkeepers. According to the complaint, the plan contracted with Transamerica Retirement Solutions between 2016 and 2020 before transitioning to Fidelity Investments in 2021. Neither recordkeeper is named as a defendant in the lawsuit.

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The text of the lawsuit refers to a number of important precedent-setting cases to argue that under ERISA, a breach of fiduciary duty claim can survive a motion to dismiss without well-pleaded factual allegations relating directly to the methods employed by the ERISA fiduciary. According to the plaintiffs, this situation is acceptable so long as the complaint alleges facts that, if proved, would show that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident.

“The unreasonable recordkeeping and managed account fees paid inferentially tells the plausible story that defendants breached their fiduciary duty of prudence under ERISA,” the complaint states.

A significant portion of the complaint also seeks to establish that all of the leading recordkeepers quote fees for the bundled recordkeeping and administration services on a per-participant basis. The complaint suggests these quotes are generated “without regard for any individual differences in services requested, which are treated by the recordkeepers as immaterial because they are inconsequential from a cost perspective to the delivery of the bundled services.”

“The vast majority of fees earned by recordkeepers typically come from the fee for providing the bundled services as opposed to the ad hoc services,” the complaint alleges. “Because dozens of recordkeepers can provide the complete suite of required services, plan fiduciaries can ensure that the services offered by each specific recordkeeper are apples-to-apples comparisons.”

The complaint alleges the Kellogg Plan had a standard level of bundled recordkeeping and administrative services, providing recordkeeping and administrative services of a “nearly identical level and quality” to other recordkeepers that also serviced mega plans during the proposed class period.

“There is nothing in the service and compensation codes disclosed by the plan fiduciaries in their Form 5500 filings during the Class Period, nor anything disclosed in the Participant section 404(a)(5) fee and service disclosure documents that suggests that the annual administrative fee charged to participants included any services that were unusual or above and beyond the standard recordkeeping and administrative services provided by all national recordkeepers to mega plans,” the complaint states.

Regarding the topic of managed accounts, the complaint brings similar allegations. The plaintiffs say the defendants caused plan participants to pay excessive fees for the managed account services it made available to plan participants by not periodically soliciting bids from other managed account service providers and/or not staying abreast of the market rates for managed account solutions, in order to renegotiate market rates.

The full text of the complaint is available here. Kellogg has not yet responded to a request for comment about the lawsuit.

Data and Research July 1, 2022

Emerging Generation Demands More From Workplace

The ‘Zillennial’ worker generation has grown by more than 5 million over the last five years, and fewer than half plan to stay at a company without a clear and positive company purpose.

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Plan sponsors will have to beef up their benefits to appeal to a new generation of workers.

In particular, for employers to attract and retain young workers, they must consider workplace benefits holistically, according to a study from MetLife, “The Rise of the Whole Employee: 20 Years of Change in Employer-Employee Dynamics.”

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“When it comes to improving job satisfaction, loyalty, and retention, employers need to think of benefits as the foundation of the whole employee experience,” said Todd Katz, executive vice president, Group Benefits at MetLife, in a release. “Benefits are critical, but they don’t exist in a silo. Employers should be offering comprehensive packages that both complement and reinforce the other critical elements of the employee experience. If they don’t, they risk losing this vital sector of the workforce to an employer who will.”

The study found that 27% of “Zillennials” surveyed, or those born between 1993 and 1998, have considered leaving their employer for a more robust benefits package over the past year, compared to 19% of all employees.

Limiting workplace benefits to retirement plans and health insurance likely won’t cut it for Zillennial workers, the MetLife study found. The micro-generation is increasingly interested in student loan debt assistance, with 50% saying the benefit is a “must have,” according to the report. While traditional benefits remain highly important, the study found that since 2017, the appeal of life insurance spiked 23 percentage points and that of hospital indemnity insurance increased 19 percentage points for workers in the age range.

The report also found that Zillennials are the least satisfied at work, with 53% who say having an unfulfilling job is a main source of stress—amid a 20-year low across all generations in worker satisfaction. 

“Historical notions of employee well-being were synonymous with health insurance and retirement savings,” the study states. “But that perspective has evolved significantly during the last 20 years. Financial wellness now entails having access to financial planning and emergency savings, in addition to a retirement plan.”

Two years into the COVID-19 pandemic, employers have to grapple with the changed workplace landscape, the study found, as Zillennial workers continue to deal with burnout and social isolation: 53% of the cohort report having sought mental health help in the last year, compared with 31% of all employees. MetLife’s historical data also show that workers’ expectations have been transformed, with younger employees driving the change during the pandemic.

The study found that 41% of Zillennials feel their employer is doing the ‘minimum possible’ to help them adapt to a new working environment, versus 36% of all workers. One result is that Zillennials are more discerning than other generations in assessing their employers, as workers now consider every aspect of their experience beyond traditional benefits.

Zillennials want a work culture that incorporates employees’ social and mental health, the study found. According to the report, their emphasis on recognizing the importance of workers’ lives beyond work and policies that limit working hours increased by 13% and 11%, respectively, over the last two years.

The study found that workers who are satisfied with their flexibility at work are more likely to plan to stay at their organization for 12 months (84%), versus employees who are unsatisfied with employer-provided flexibility (47%).

When workers were asked which benefits would most improve their well-being, Zillennials said that paid and unpaid leave benefits (74%); work-life management programs (67%); mental wellness benefits, including employee assistance programs and reimbursement for therapy sessions (62%); and programs to support their financial needs (55%) were top priorities, the study found.

“It’s clear we’ve reached a critical inflection point in the workplace, and employers across industries should not only be taking note but should also see this as an important opportunity for reflection and growth,” Katz added. “As employees rethink not only how, but also why they work, Zillennials are quickly setting a new standard for evaluating the employee experience. By using this generation’s expectations as a barometer for success, employers can evolve to meet their needs in stride–which is important, particularly as Zillennials gain a stronger foothold in the workforce.”

The MetLife U.S. Employee Benefit Trends Study was conducted in November 2021 and comprises two distinct studies from Rainmakers CSI. The employer survey included 2,737 interviews with benefits decision makers and influencers at companies with at least two employees and the core employee survey consisted of 3,041 interviews with full-time employees, ages 21 and over, at companies with at least two employees.

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