Bechtel employees file ERISA lawsuit over 401(k) plan excessive fees
The contruction firm is being sued over the fees retirement plan participants paid after being defaulted into managed accounts, which were “essentially expensive target-date funds,” according to the ERISA lawsuit.
Engineering and construction firm Bechtel was sued last week by a former employee who says the company mismanaged its $5.1 billion retirement plan by defaulting workers into a pricey Empower managed account service that offered them little value, in an Employee Retirement Income Security Act (ERISA) lawsuit.
Plaintiff Debra Hanigan, who filed a class action lawsuit on behalf of all employees in the U.S. District Court for the Eastern District of Virginia, is seeking “all profits which participants would have made if the defendants had fulfilled their fiduciary obligations.”
The suit also alleges that Bechtel violated its fiduciary duty “by failing to monitor the fiduciaries responsible for Plan administrative fees” by defaulting plan participants into the managed account option, which was “essentially expensive target-date funds, focused on the single demographic factor of age.”
As a result, the suit claims that the Bechtel Plan additionally cost its participants on average approximately $4,709,725 per year in additional recordkeeping fees, “which equates to on average approximately $293 per participant per year”—and that, “by using the Empower managed account program … the Plan cost its participants (when accounting for compounding percentages) a total, cumulative amount in excess of $23,555,043.”
As a result of the managed account program, “the Plan and the Plan Participants have less money, and Empower and Financial Engines earned tens of millions of dollars without providing any benefit or value to the Bechtel Plan and its participants,” according to the lawsuit.
Related: UnitedHealth Group had ‘its hand in the cookie jar,’ said judge inn its ERISA lawsuit
While managed account programs are seeing growth in retirement plans, they are typically offered as an option and not a qualified default investment alternative for participants, according to research from Cerulli Associates. “Prudent fiduciaries would not automatically enroll plan participants, who tend to be disengaged and do not provide additional personalized information to the recordkeeper, in an expensive MA program when much less expensive target date funds for that purpose are readily available,” said the lawsuit.