Nordstrom hit with ERISA suit over excessive 401(k) fees, misuse of forfeited funds

The firm mismanages its $3.4 billion 401(k) plan by overpaying for administrative services and using money forfeited by former employees, the class action lawsuit alleges.

Nordstrom store in Baltimore, MD

Nordstrom has cost its 104,811 workers millions in savings because the retailer mismanages its $3.4 billion 401(k) plan by overpaying for administrative services and using money forfeited by former employees for its own benefit, allege employees in a class action lawsuit filed this week. The employees have filed suit under the Employee Retirement Income Security Act (ERISA) for breach of ERISA’s fiduciary duties.

The Nordstrom plan’s annual fees for recordkeeping and managed account services were at least $63 per person over the past few years, when a reasonable fee would have been closer to $22 per person, the employees said. The company’s failure to monitor these fees or negotiate a better deal cost the plan tens of millions of dollars, according to the complaint.

The lawsuit (McWashington v. Nordstrom Inc.), filed by Curtis McWashington and four other current and former employees, alleges that the fiduciaries of the participant plan “failed to fulfill their fiduciary duties to prudently and loyally ensure the Plan’s total recordkeeping and other administrative expenses were reasonable and not excessive, as well as engaged in self-dealing with regard to Plan forfeitures in violation of ERISA fiduciary prohibited transaction rules.”

“The Plan’s participants paid vastly more than what comparable very large retirement plans pay for comparable recordkeeping, administrative, and managed account services,” the suit asserts.

Also, the suit alleges, Nordstrom’s 401(k) plan “failed to use the Plan’s forfeitures to reduce the Plan’s expenses, and instead used that money to benefit Nordstrom by reducing Nordstrom’s obligation to make future benefit contribution to Plan.”

Recently, there have been a rash of plan forfeiture lawsuits, which allege a company used assets forfeited by worker workers for its own financial gain. This week, Bank of America was sued by 401(k) plan participants over misuse of forfeited funds, while Wells Fargo, Honeywell, Mattel and Clorox are other firms that have been hit with forfeiture lawsuits in the last few years.

Alight, the plan’s recordkeeper, “…is not providing anything exceptional, unusual, or customized, with regard to the Bundled [recordkeeping and administrative (RKA)] services provided to the Plan and its participants,” the suit alleges.

Related: Bechtel employees file ERISA lawsuit over 401(k) plan excessive fees

Because Nordstrom did not act with prudence, compared to other plans of similar sizes, “the Plan actually cost its participants a total minimum amount of approximately $11,081,680 in unreasonable and excessive Bundled RKA fees.”

Nordstrom’s RKA fees are $42 per participant, compared to other companies’ 401(k) plans – Lowe’s ($18.50), Costco ($20) and UPS ($23), according to the lawsuit.