Lawsuit Targets Fiduciaries of Hess Corp.

A former Hess Corp. employee sued the global energy company under the Employee Retirement Income Security Act, filing a complaint in Texas federal court on February 12 alleging fiduciaries of the 401(k) plan failed to administer the retirement plan prudently.

Specifically, the lawsuit, filed by Joshua Wagner, alleges that fiduciaries selected and retained a costlier investment option—T. Rowe Price target-date mutual funds—than substantially similar, better-performing and cheaper alternative investment options available to the plan.

Nearly 60% of the T. Rowe Price TDF mutual funds were “significantly more expensive than their substantially identical collective trust counterparts” between 2017 and 2022, the complaint states.

The lawsuit, Joshua Wagner v. Hess Corp., filed in U.S. District Court for the Northern District of Texas, San Angelo Division, seeks class action status, alleging two ERISA fiduciary breach claims: fiduciary duties and failure to monitor other plan fiduciaries.

“Defendants failed to switch to an investment option that was the same investment in a different wrapper at a much lower price, a manifestation of that defendants’ failure to prudently monitor the plan’s investment options,” Wagner’s attorneys wrote in the complaint. “There is no good faith explanation for utilizing higher-cost funds when lower-cost funds are available for the exact same investment.”

T. Rowe Price target-date mutual funds used by the plan were as much as 24% more expensive than the substantially identical collective trust version, according to the complaint.

TDFs held in CITs are generally lower-cost investments than Investment Company Act of 1940-regulated mutual funds because CITS do not have boards of directors to compensate, nor the Securities and Exchange Commission filing requirements of mutual funds, explains Chris J. Brown, founder of and principal in Sway Research.

“Therefore, managers of CITs are often able to pass savings from lower overhead of CITs onto shareholders via lower expense ratios,” Brown says.

CITs are regulated by the Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury.

Hess’s plan fiduciaries failed to use their bargaining power as one of the largest 401(k) plans in the U.S., regarding the fees, expenses and costs charged against participants’ investments, according to the complaint.

The T. Rowe Price mutual fund series provided by the Hess plan had an average expense ratio of 44 basis points in 2021 and 2022, compared with 37 bps for CITs, according to the lawsuit.