The U.S. subsidiary of Dutch insurance giant Aegon has been sued by a participant in its 401(k) over claims she and other employees paid $40 million in excessive fees.
The plaintiff, identified as Georgia resident Lequita Dennard, is seeking class-action certification in the suit, which was filed last week in Los Angeles federal court. The defendants named include Aegon USA and another Aegon subsidiary, Transamerica Retirement Solutions, among others.
A spokesman for Aegon dismissed the allegations.
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"Our business complies with all applicable state and federal statutes and regulations, and participates in periodic regulatory reviews. The allegations asserted against the Aegon/Transamerica employees' retirement plan are without merit," the spokesman said.
By using the company's own affiliates and investment products to design and manage its plan, Aegon USA was able to add layers of "superfluous" costs, causing the plan's 16,715 participants to pay fees "far higher than peers" in comparable billion-dollar retirement plans, the suit alleges.
Among other practices, Aegon charges a substantial advisor fee merely for picking a sub-advisor to do all the real work of portfolio management, the suit said.
Most of the $40 million in excessive fees, according to the complaint, went into the coffers of Aegon and its affiliates, which served as the investment manager and record keeper for the vast majority of plan assets.
At least 16 Aegon collective investment trusts or pooled separate accounts were offered in the plan, which had $1.56 billion in assets at the end of the 2013 plan year. Participants were charged an investment management fee on the separate accounts, plus fees on the mutual funds in those accounts, and another layer of sub-advisory fees to the fund managers within those mutual funds, the suit said.
"All of those layers of management fees are not necessary," said Greg Porter, a partner at Bailey and Glasser, the firm representing the prospective class of plaintiffs. … (The) participants are paying management fees for nothing, in my mind."
"Mega plans," those having over $1 billion in assets, have a median total fee of 30 basis points, or .30 percent, including management fees, administrative fees and other insurance charges, according to the suit.
The average fees in the Aegon plan for the period in question (Feb. 6, 2009-present) was 160 basis points, or 1.6 percent, on management investment fees alone, according to the complaint.
That's triple the amount of even those plans considered to be expensive by plan cost analysis done by The 401(k) Report.
Last August, Fidelity settled two lawsuits brought by its own employees alleging the giant fund company charged excessive fees by offering its own mutual funds in its investment lineup.
But Porter, who also represented plaintiffs in that settlement, said the Fidelity case resembles the Aegon claim only in that they are both financial services firms using their own products for plan design.
"This type of layering of fees we are claiming in Aegon was not a part of the Fidelity claim," he said.
It will be up to a judge to determine whether to grant the case, Dennard v. Aegon, class-action status.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
