Former participants and beneficiaries of Live Nation Entertainment’s 401(k) plan filed a class action complaint against the company and its plan committee on March 15, alleging breaches of fiduciary duty under the Employee Retirement Income Security Act.

The plaintiffs, Pamela Avecilla and Sean Bailey, in a suit filed in the U.S. District Court for the Central District of California, have accused Live Nation of offering and maintaining investment offerings with higher-cost share classes when identical lower cost class shares were available and could have been offered to participants. The case is Avecilla, Bailey vs. Live Nation Entertainment Inc., the Live Nation Entertainment Inc. 401(k) plan and 10 company and plan executives, identified only as “John Does.”

Plaintiffs claim the fees resulted in participants and beneficiaries paying “unnecessary costs for services that provided no value to them and resulted in a reduction of compounded return gains,” the complaint states.

In addition, the plaintiffs argue that Live Nation offered a guaranteed income product that carried “unnecessarily high risk” and generated relatively low returns. They claim the investments were expensive, which deprived participants of compounded returns that greatly exceed the annual cost of fees and revenue sharing.

Live Nation, based in Beverly Hills, California, is an America global entertainment company. It was founded as SFX Entertainment in 1996, spun off from Clear Channel with the Live Nation name in 2005 and merged with Ticketmaster in 2010. The company promotes, operates and manages ticket sales for live entertainment in the United States and internationally.

As of December 31, 2021, the Live Nation’s 401(k) plan had 8,974 total participants with account balances and $769,009,907 in assets, according to the complaint.

Higher-Cost Share Classes

The plaintiffs identified 15 funds, offered by Fidelity, that had one or more less expensive share classes at the time of selection and/or throughout the limitations period, alleging as many as 70% of share classes violated the fiduciary duty to select the lower-cost share class of the funds.

The exact limitations period is “unknown at this time,” the lawsuit states.

In one instance, the complaint states that Live Nation chose Janus Henderson Enterprise “T” shares as an investment option available to participants in 2016. The cheaper “N” shares had an inception date of July, 12, 2012. According to the complaint, the “N” share class cost 25 basis points less than the “T” shares that Live Nation continued to use.

Participants were harmed by the higher fees, estimated to cost them nearly $4.5 million through the limitations period, the lawsuit states.

Excessive Fees

Indirect fees also “wildly fluctuated,” according to the lawsuit, with no explanation other than asset values fluctuated. These indirect fees are the result of investing in plan assets in higher cost share classes, according to the complaint. The fees are not tethered to any service provided to the plan participants but rather are tied to the amounts invested by plan participants.

“The use of share classes to create funds for revenue sharing does not justify the increased fees and lost returns imposed on plan participants,” the complaint states. “Rather, empirically speaking, revenue-sharing burdens on mutual fund investors are always more costly over time than the revenue-sharing credit offered by the corresponding mutual fund share class.”

The complaint further states that plan participants are generally not aware of the fee burden their 401(k) accounts bear from indirect fees.

“Unlike direct fees, which are clearly listed on participants’ statements, indirect fees are unshown and unknown to those paying those costs,” the complaint states. “The erosive effect of excessive fees and the resulting lost returns compounds over time substantially lowering the corpus of participants’ retirement investments.”

Superior Alternatives Were Allegedly Available

The plaintiffs also accuse Live Nation of imprudently maintaining the plan’s investment in the New York Life Guaranteed Interest Annuity Contract Stable Value Option when lower-cost share classes existed and other investment vendors offered “superior alternatives.”

“While not all information is publicly available for comparison purposes, limited documentation for 2022 showed a 2.05% crediting rate paid by NY Life to plan participants, while NY Life for the same product on the web claims a 4.3% rate,” the complaint states.

Higher spread fees result in lower crediting rates, and the complaint alleges that Live Nation failed to monitor and rectify 2% in excess spread fees per year on average.

“Taking inflation into account, the difference in real dollar terms was even more pronounced, with real (net of inflation) returns for the Live Nation fund near zero,” the complaint states.

The plaintiffs claim this breach of fiduciary duty to the stable value fund resulted in a loss (before compounding) of more than $2 million of participants’ retirement savings. The complaint further argues that Live Nation should have submitted requests for proposal to other stable value fund providers but failed to do so.

The plaintiffs are seeking for the defendants to make good on all losses to the plan resulting from each breach of fiduciary duties and to restore any lost profits to the plan. They also seek to reform the plan to comply with ERISA and grant other equitable or remedial relief as the court deems appropriate.

Christina Humphrey and Robert Fisher of Christina Humphrey Law, P.C. are representing the plaintiffs in this case. Live Nation has not yet responded to a request for comment.