Compliance August 17, 2021

Xerox Faces ERISA Excessive Fee Suit

The plaintiffs claim recordkeeping expenses more than doubled during the time Xerox Corp. used its affiliated recordkeeper. 

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Participants of the Xerox Corp. 401(k) Savings Plan have filed an Employee Retirement Income Security Act (ERISA) lawsuit against Xerox Corp., its plan administration committee and various individual defendants alleging imprudent recordkeeping fees.

The plaintiffs say the defendants used its in-house recordkeeper and passed Xerox’s fees on to the plan’s participants. Xerox HR Benefit Services, a wholly owned subsidiary of Xerox, was hired as the plan’s recordkeeper in 2013, according to court documents. The plaintiffs, which include current and past participants of the 401(k) plan, allege Xerox’s fees were “well above reasonable market rates” from the beginning of the arrangement.

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According to the complaint, the the defendants failed to “prudently and loyally oversee the plan’s recordkeeping service provider, and instead used the plan to promote Xerox’s own business interests.”

The plaintiffs claim that under Xerox HR Benefit Services, recordkeeping expenses in the plan more than doubled from $54 per participant in 2013 to $136 by 2019, the last year for which data is available, despite recordkeeping costs in the market declining overall in that time. The defendants switched to an unaffiliated recordkeeper earlier this year.

Xerox’s recordkeeping business was spun off into Conduent Human Resource Services in 2017, and Conduent was the plan’s recordkeeper until 2021. The plaintiffs claim that retaining Conduent as the plan’s recordkeeper was financially beneficial to Xerox, which “retained significant equity in Conduent after the spinoff, and thus benefited financially from actions which were beneficial to Conduent,” according to the complaint.

“By retaining the services of an affiliated recordkeeper and failing to engage in a prudent investigation of other service providers in the marketplace, the defendants allowed the plan to pay as much as four times more than what the plan would have paid in the open market for recordkeeping services of comparable or superior quality,” the plaintiffs said in the complaint. As a result, the complaint claims participants overpaid millions of dollars in excessive fees from 2015 through this year.

The plaintiffs assert claims against the defendants under ERISA for breaches of the fiduciary duties of loyalty and prudence, and against Xerox for failure to monitor fiduciaries.

In an email to PLANSPONSOR, Xerox said it was unable to comment on pending litigation. 

Ask the Experts August 17, 2021

Allowing Roth Conversions for All Vested Amounts

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“I noticed that our ERISA 403(b) plan allows for Roth conversions, but only for employees who are otherwise eligible for a distribution. Is there any reason that we would not wish to extend the Roth conversion option to all employees?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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At this point, there are limited reasons to maintain this restriction. One reason is the need to track any distribution restrictions through the conversion.  For example, if a participant converts pre-tax elective deferrals to Roth amounts prior to age 59.5, such amounts must be tracked separately from those that are otherwise eligible for distribution.

The fact that your plan has this Roth conversion language likely stems from a historic quirk in the law. Back in 2010, when the Roth conversion rules were enacted, conversions were indeed limited only to those participants who were otherwise eligible to receive distributions from your plan. However, those rules were changed by the American Taxpayer Relief Act of 2012 for all vested amounts after 2012. Now, all vested contributions are eligible for conversion to Roth, if the plan permits, even if the participant is not yet eligible for a distribution from the plan.

When the change to the Roth conversion rules was first made in 2013, many recordkeepers were not yet ready to allow conversions for all vested amounts, as they had only recently reprogrammed their operating systems to allow Roth conversions only for amounts that were eligible for distribution. However, over time, most recordkeepers have modified their operating systems to allow Roth conversions for all vested amounts. Still, you should check with your recordkeeper(s) or third-party administrator(s) (TPAs) to confirm that it can properly administer Roth conversions for all vested amounts before amending your 403(b) plan to allow for such conversions.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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