Parties in Lawsuit Over Revenue Sharing in 401(k) Plan Agree to Settle

Parties in a lawsuit alleging BTG International and company officials allowed its Profit Sharing 401(k) Plan recordkeeper to receive excessive and unreasonable compensation through a variety of undisclosed channels have filed a motion for preliminary approval of a settlement agreement.

Under the settlement agreement, “without any admission or concession on the part of the defendants as to the merits” of the lawsuit, the named defendants have agreed to pay $560,000.

The complaint stated that “since the plan is a group annuity 401(k) product, defendants offered only investment options primarily offered by John Hancock to the exclusion of all other options.” According to the complaint, during the class period, of the plan’s more than 100 investment options, 53 of them “appear to be managed by John Hancock, with the remainder paying revenue sharing to John Hancock.”

The complaint argued that plan fiduciaries have limited their selection of funds to only those funds which provide sufficient revenue sharing, thus foregoing superior investment alternatives and selecting or maintaining inferior investment options based upon revenue-sharing relationships.

The plaintiff alleged that the defendants did nothing “to limit or curtail John Hancock’s growing compensation, rather, John Hancock was allowed to generate ever higher fees despite costs which were either stable or falling.” The lawsuit said this failure “cost the plan millions of dollars in excessive fees charged directly by John Hancock or collected by John Hancock from the plan’s investment options through revenue sharing.”

The plaintiff also accused the defendants of failing to accurately disclose the fees John Hancock received on Form 5500 filings with the Department of Labor (DOL) each year from 2012 to the present.