Medical System’s Retirement Plans Target of Excessive Fee Lawsuit

The suit claims the use of an asset allocation solution for the medical system’s 401(a) and 403(b) plans funneled participant contributions into expensive investments.

A lawsuit has been filed on behalf of participants in the University of Maryland Medical System (UMMS) 401(a) Defined Contribution Plan and UMMS Voluntary 403(b) Plan, alleging the medical system and its employee benefits committee violated their Employee Retirement Income Security Act (ERISA) fiduciary duties.

As in many recent excessive fee lawsuits, the defendants are accused of failing to ensure investment options in the plans were prudent in terms of performance and cost, failing to select prudent share classes, and not selecting similar investment options with lower fees, such as collective investment trusts (CITs) or passive funds instead of actively managed ones. But this lawsuit also takes issue with the plan’s use of Prudential’s GoalMaker asset allocation service, calling it “abusive.”

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UMMS said in a statement to PLANSPONSOR: “We are aware that a class action lawsuit has been filed alleging that certain UMMS retirement plans paid excessive fees in connection with their investment offerings and administrative services, among other allegations. We do not believe that there is any merit to the current claims. UMMS, and/or its designated representatives, routinely monitors the various investment offerings and educational tools offered to its retirement plan participants. This process ensures that any fees paid by participants are reasonable and all services and investment offerings are in the best interests of the participants.”

The complaint notes that “a retirement investor with limited time or investment experience could benefit from the use of such a resource if monitored by a prudent fiduciary that has the participants’ best interests in mind.” But, it says, this is not the case with GoalMaker. “GoalMaker is a proverbial wolf in sheep’s clothing. It is designed and used to funnel participants into expensive and poorly performing investments,” the complaint says.

The plaintiffs say what they call the “allocation and kickback scheme” was made worse by the plan using it as the qualified default investment alternative (QDIA), to which participant contributions were automatically invested.

“GoalMaker served Prudential’s interests at the expense of the financial interests of the participants by funneling participants’ retirement savings into high-priced investments that paid substantial kickbacks to Prudential,” the lawsuit alleges. “The inclusion and designation of GoalMaker as the QDIA resulted in participants paying excessive investment management fees, administrative expenses and other costs, which over the class period cost participants millions of dollars in retirement savings.” Prudential is not named as a defendant in the suit.

The plaintiffs go on to say that the defendants “did not have the competence, exercise the diligence or have in place a viable methodology to monitor the GoalMaker allocation service and investment options,” and that they should have implemented a prudent investment methodology that would have made them aware of the GoalMaker “scheme.” They also suggest that “prudent fiduciaries are also informed of two unrelated lawsuits filed in federal courts that raise awareness to the GoalMaker abuses described herein.”

The lawsuit also specifically claims that the defendants offered only one stable value fund option, which was expensive and underperforming, and they allowed GoalMaker to place a substantial percentage of participants’ assets into the stable value fund.

Aon-Willis Towers Watson Merger Proposal Called Off

In a statement, the firms say they have agreed to terminate their business combination agreement and end antitrust litigation filed by the Department of Justice.

News broke Monday morning that the proposed merger of Aon plc and Willis Towers Watson (WTW) has been terminated, drawing one of the most closely watched merger and acquisition (M&A) transactions in the global financial services industry to a sudden and unsuccessful close.

In a statement published to their respective websites, the firms say they have agreed to terminate their business combination agreement and end litigation with the U.S. Department of Justice (DOJ). The proposed combination was first announced on March 9, 2020.

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“Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice,” says Aon CEO Greg Case. “The DOJ position overlooks that our complementary businesses operate across broad, competitive areas of the economy. We are confident that the combination would have accelerated our shared ability to innovate on behalf of clients, but the inability to secure an expedited resolution of the litigation brought us to this point.”

For context, it has been about six weeks since the DOJ filed a civil antitrust lawsuit to block Aon’s proposed $30 billion acquisition of WTW, a transaction that would have brought together two of the “Big Three” global insurance brokers. The largest broker currently is Marsh McLennan, which owns Mercer, followed by Aon and WTW.

At the time, the WTW and Aon leadership said the DOJ’s action “reflects a lack of understanding of our business, the clients we serve and the marketplaces in which we operate.” The firms argued—and continue to argue—that the combination would accelerate innovation on behalf of clients, “creating more choice in an already dynamic and competitive marketplace.”

WTW and Aon have also argued that the pandemic’s impact has underscored “the need to address similar systemic risks, including cyber threats, climate change and the growing health and wealth gap which our combined firm will more capably address.”

Case’s Monday statement continues: “Over the last 16 months, our colleagues have turned potential challenges into opportunities to advance our Aon United strategy. … Our respect for Willis Towers Watson and the team members we’ve come to know through this process has only grown.”

Willis Towers Watson CEO John Haley says the firm remains well-positioned to vigorously compete across its businesses around the world.

In connection with the termination of the business combination agreement, Aon will pay a $1 billion termination fee to Willis Towers Watson. In the United Kingdom, Willis Towers Watson’s proposed plan of arrangement has now lapsed.

Both firms say they will provide further financial updates and outlooks on their respective Q2 2021 earnings calls, which are set to take place on July 30 for Aon and August 3 for Willis Towers Watson.

The preliminary statement about the merger termination didn’t directly address the status of Aon’s definitive agreement, made public in June, to sell its U.S. retirement business to Aquiline Capital Partners and its Aon Retiree Health Exchange business to Alight.

According to a statement shared at the time by Aon, the total gross monetary value of that deal is approximately $1.4 billion, and the agreements were specifically intended to “address certain questions raised by the U.S. Department of Justice in relation to the combination with respect to the markets in which these businesses are active.”

As Aon clearly spelled out, the move was intended to resolve potential future antitrust issues for Aon while it worked on its proposal to merge with WTW. Asked for a comment on this matter, the firm shared a previously published press release confirming the signing of the definitive agreements.

The U.S. retirement business Aquiline is acquiring includes approximately 1,000 employees and the business segments covered include U.S. core retirement consulting, U.S. pension administration and the U.S.-based portion of Aon’s international retirement consulting business, along with many solutions and tools.

While the merger deal with Aon and WTW has been halted, broader financial services M&A activity continues at record pace. Over the past decade, the universe of retirement plan recordkeepers has contracted from about 400 to approximately 150, with no signs of slowing. The adviser/consultant space is now starting to experience commensurate consolidation, and the same can be said of asset managers

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