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A Virginia federal judge has dismissed – for the second time – a lawsuit against engineering and construction firm Bechtel Global Corp. that argued that the company’s retirement plan fiduciaries “breached their fiduciary duty” because the firm’s default managed account option was no better than a target date fund.
U.S. District Judge Anthony J. Trenga of the US District Court for the Eastern District of Virginia tossed the lawsuit last week, marking the second dismissal of retiree Debra Hanigan’s case. She alleged that Bechtel’s choice of a managed account for its Employee Retirement Income Security Act (ERISA) plan default investment led to excessive fees and subpar returns, arguing that a target date fund (TDF) would have been a better alternative.
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However, in his second ruling, Judge Trenga found Hanigan’s second amended complaint inadequate since it still did not establish that the managed account and TDF were sufficiently comparable, calling her fee claims unsupported by a “meaningful benchmark.”
Last June, Bechtel was 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. However, the firm secured another court order dismissing a retiree’s proposed class action saying the engineering firm mismanaged its $5.7 billion retirement plan by defaulting workers into a pricey managed account service.
In the suit, Hanigan v. Bechtel Global Corp., participant-plaintiff Debra Hanigan claims that the plan fiduciaries of the Bechtel Trust and Thrift Plan “breached their fiduciary duty … causing tens of millions of dollars of harm to Plaintiff and Class Member’s retirement accounts.”
The suit also alleged 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 "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: Bechtel employees file ERISA lawsuit over 401(k) plan excessive fees
However, last October, Judge Trenga ruled that the suit failed to make a “plausible” case with “meaningful benchmarks” — and dismissed the suit, albeit with an opportunity to amend the suit to address those shortcomings.
The retiree’s latest complaint still fails to provide a meaningful benchmark by which to judge the fees charged by Bechtel’s managed account service, Judge Trenga said in a Jan. 10 opinion.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
