A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the Eastern District of Wisconsin’s Green Bay Division, naming as defendants the Oshkosh Corp., its board of directors, its retirement plan administration committee and some 30 individuals alleged to be fiduciaries.

The lead plaintiff filed the proposed class action lawsuit on behalf of the company’s $1.1 billion defined contribution (DC) plan and its thousands of participants. He alleges that, from June 16, 2014, through the date of judgment, defendants breached their fiduciary duties by authorizing the plan to pay unreasonably high fees for recordkeeping, by failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, and by maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and better performance histories.

In addition, the complaint alleges the plan generally chose more costly actively managed funds rather than index funds that offered equal or better performance at substantially lower cost. Finally, the suit claims the administrative fees charged to plan participants were consistently greater than the fees of most comparable 401(k) plans, when fees are calculated as cost per participant or when fees are calculated as a percent of total assets.

Background information included in the text of the lawsuit says the plan was started on August 1, 1972, and it had more than 12,000 participants and assets exceeding $1.1 billion at year-end 2018. According to the complaint, at different times, the plan offered about 22 different investment choices to its participants. At all relevant times, the complaint suggests, the plan’s fees were excessive when compared with peer 401(k) plans offered by other sponsors that had similar numbers of plan participants and similar amounts of money under management.

“The excessive fees led to lower net returns than participants in comparable 401(k) plans enjoyed,” the complaint states. “Despite the overwhelming evidence that expenses matter and that a fiduciary is obligated to consider expenses in making investment decisions, defendants did not have a viable methodology for monitoring the expenses of the funds in the plan. Not only did defendants maintain a menu of high-fee funds, defendants excluded many low-fee index funds. … During the class period, defendants maintained an investment platform that contained 16 to 18 active mutual funds, three collective trusts and one index mutual fund.”

Similar to other excessive fee lawsuits filed recently under ERISA, the Oshkosh complaint includes various charts that purport to calculate the exact excess costs allegedly being paid by participants. It is suggested in this suit that some actively managed funds included in the plan charge fees that are 2,000% to 4,000% higher than “comparable index funds.”

The complaint goes into some detail about the recordkeeping fees charged to the plan, analyzing these on both a per-participant and asset-based basis. The suit suggests the fees are excessive however they are calculated, and that there are inappropriate revenue-sharing agreements within the plan’s operational infrastructure that are in part responsible for the allegedly excessive fees. 

One somewhat unique aspect of this lawsuit is its discussion of fees paid to the plan’s investment adviser, which is not actually named as a defendant. During the proposed class period, the defendants used Strategic Advisors Inc. (SAI) as their primary investment adviser or consultant and Baird as a secondary consultant. Based on U.S. Securities and Exchange Commission (SEC) documents cited in the complaint, both SAI and Baird are dual-registered, meaning the firms received compensation from direct fees from the plan and some fees or commissions from money managers and/or insurance providers.

“The fact that disclosed fees paid to SAI increased 445%—from $73,389 in the year 2014 to $400,305 in the year 2018—strongly suggest either overpayments and/or non-disclosed fees paid to SAI from money managers during the period,” the lawsuit claims. “Baird has been fined over $4 million by the SEC for breaches of fiduciary duty in connection with its mutual fund share class selection practices and fees.”

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