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Compliance November 24, 2020
Bath and Body Works Parent Company Sued for 401(k) Plan Excessive Fees
The lawsuit against L Brands says recordkeeping and investment fees were excessive and fiduciaries failed to use the lowest-cost share class of funds.
Reported by Rebecca Moore
A former participant in the L Brands 401(k) Savings and Retirement Plan is suing the plan sponsor, its retirement plan committee and unnamed individual fiduciaries for breaching their duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive fees for recordkeeping and investments.
The complaint notes that the 401(k) Averages Book shows the average cost for recordkeeping and administration in 2017 for plans that were much smaller than L Brands’ plan was $35 per participant. It says participants in the L Brands plan were paying $56 per participant throughout the period covered by the lawsuit.
“Given its size and negotiating power, the plan should have been able to negotiate a total recordkeeping and administrative fee significantly lower than $35 per head,” the complaint states. “As of December 31, 2019, the plan had approximately $1.6 billion in assets and 33,761 participants.” L Brands is the parent company of Victoria’s Secret and Bath and Body Works.
The lawsuit alleges that “it is clear that defendants either engaged in virtually no examination, comparison or benchmarking of the recordkeeping/administrative fees of the plan to those of other similarly sized defined contribution [DC] plans, or were complicit in paying grossly excessive fees.”
The defendants are also accused of failing to “monitor the average expense ratios charged to similarly sized plans for investment management fees, which together with the plan’s high recordkeeping and administrative costs renders the plan’s total plan cost (TPC) significantly above the market average for similarly sized and situated defined contribution plans.” The lawsuit says that from 2014 through 2019, the plan paid out investment management fees of 0.38% to 0.46% of its total assets, higher than the average TPC of 0.28% for plans with more than $1 billion in assets, according to a Brightscope/ICI study published in August. According to the complaint, the L Brands plan’s TPC during the period covered by the lawsuit ranged between 0.51% and 0.62% of net assets.
The lawsuit also accuses plan fiduciaries of failing to use the least expensive share classes for mutual funds on the 401(k) plan’s investment menu.