Compliance September 25, 2020

MGM Resorts Hit With 401(k) Plan Excessive Fee Suit

The allegations are similar to many other pieces of litigation challenging the use of actively managed funds over passive funds and the use of higher-cost share classes.

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MGM Resorts International has been sued by participants of its 401(k) plan alleging breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties by allowing excessive recordkeeping and investment fees.

The plaintiffs say the defendants breached their duties by, among other things, failing to review the plan’s investment portfolio to ensure investments were prudent in terms of cost and maintaining certain investment options in the plan when identical or similar investments with lower costs or better performance histories were available. The lawsuit challenges the use of some actively managed funds over passive funds, as well as the use of actively managed funds that cost more than other, similar actively managed funds.

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The lawsuit also claims fiduciaries failed to use lower fee share classes for funds offered in the 401(k) plan. “There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the complaint states.

The plaintiffs contend that as a “jumbo” plan, the MGM Resorts plan fiduciaries should have been able to negotiate for lower costs for recordkeeping. Costs for recordkeeping per participant in the MGM plan ranged from $72.93 in 2014 to $69.60 in 2018. The lawsuit says, “Some authorities have recognized that reasonable rates for large plans typically average around $35 per participant.”

The complaint says the defendants failed to manage costs and ensure reasonable costs by not regularly issuing a request for proposals (RFP).

MGM Resorts International told PLANSPONSOR it does not have a comment about the lawsuit.

Deals and People September 25, 2020

Retirement Industry People Moves

Schroders selects fixed income head and CalPERS names private equity investment director.

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Art by Subin Yang
Art by Subin Yang
Art by Subin Yang

Schroders Selects Fixed Income Head

Schroders has named Andy Chorlton as head of fixed income. 

Effective October 1, Chorlton will assume the role, which was previously held by Philippe Lespinard for more than a decade. This succession plan will take effect from October 1 through the end of March 2021. Chorlton will report to Charles Prideaux, global head of investment, and will join the Schroders Group Management Committee.

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Most recently, Chorlton was Schroders’ head of U.S. multi-sector and fixed income solutions, having spent the past 20 years specializing in fixed income investing. He joined Schroders’ New York office in 2013 following the acquisition of STW Fixed Income in the U.S. and returned to the UK in August 2019.

New York-based Lisa Hornby, fixed income fund manager, will take over Andy’s responsibilities as head of U.S. multi-sector fixed income. She will lead the team from New York and continue to report to Andy.

“Andy will build on the strength of Schroders’ fixed income investment platform, which delivers leading investment research and high alpha flagship strategies alongside investment solutions designed to meet clients’ increasingly complex investment needs,” comments Prideaux. “Andy’s fixed income investment experience meant he was the standout candidate to succeed Philippe and we are convinced he will continue to drive our focus on client performance as well as the growth of the platform.”

CalPERS Names Private Equity Investment Director

The California Public Employees’ Retirement System (CalPERS) has announced that Yup Kim will join the pension fund as its new investment director in private equity.

Kim will help lead the CalPERS private equity program, engaging across all functions, including strategy, team management and investment activities for primary, secondary and co-investment opportunities globally. He comes to CalPERS from the Alaska Permanent Fund Corp. (APFC), where he served as senior portfolio manager for private equity and special opportunities.

Kim will begin as investment director on September 28. He will report to Greg Ruiz, managing investment director of private equity.

“Yup has been a thought leader in the industry with a unique combination of strategic insight, investing acumen and managerial experience,” Ruiz says. “The evolution of Alaska Permanent’s private equity program stands out for its innovation, thoughtfulness and investment returns. I look forward to partnering with Yup in the years to come as we continue to strengthen and evolve our private equity program.”

Kim joined the Alaska Permanent Fund in 2016, and, before that, held roles at Deutsche Bank Private Equity, Performance Equity, Silver Point Capital and Citigroup. He has a bachelor’s degree in economics from Yale University.

“CalPERS’ private equity program has tremendous potential to generate long-term outperformance across the private markets spectrum,” Kim says. “There are incredible, unearthed competitive advantages at CalPERS that we’ll focus on cultivating and compounding over time to deliver strong results for all of our beneficiaries. I am thrilled to have the opportunity to contribute to a world-class private equity program at CalPERS.”

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