Ex-participants of the $1.6 billion Trader Joe’s Company Retirement Plan are suing fiduciaries of the system for allegedly breaching their Employee Retirement Income Security Act (ERISA) duties to plan participants through poor handling of the “management, operation, and administration of the plan.”
Specifically, the plaintiffs asserted Trader Joe’s breached its fiduciary duties by failing to mitigate the “excessive fees” charged to the plan by Capital Research & Management Co., the plan’s recordkeeper, subsequently costing the plan millions of dollars, the plaintiffs asserted in a court filing.
“The impact of excessive fees on employees’ and retirees’ retirement assets is dramatic,” the court filing said. The US Department of Labor noted that a 1% higher level of fees over a 35-year period makes a 28% difference in retirement assets at the end of a participant’s career.
The court filing says Trader Joe’s sidestepped its “tremendous bargaining power” granted to it by its scale in assets under management by “inappropriately” choosing relatively expensive mutual fund share classes, causing the plan to pay unreasonable and excessive fees for recordkeeping and other administrative services.
“Over the past six years, the plan paid the following recordkeeping fees in the amount of roughly $140 per participant,” the plaintiffs said. “A reasonable recordkeeping fee for the plan is $40 per plan participant.”
It’s a clear breach of the strict fiduciary duties of loyalty and prudence to cover retirement plan fiduciaries implemented by the ERISA law, the lawsuit alleges. An ERISA fiduciary must act “with the care, skill, prudence, and diligence” in the best interest of plan participants and beneficiaries.
Even though Trader Joe’s has not disclosed to plan participants the precise amount of fees Capital Research collects from the retirement plan, “even with limited information…it is apparent that Capital Research’s fees and compensation is excessive,” the filing said.
This is in part to the payment scheme Trader Joe’s and Capital Research agreed upon, which is an asset-based revenue-sharing arrangement. The arrangement “bear[s] no relation to a reasonable recordkeeping fee and can provide excessive compensation. Additionally, Trader Joe’s offered to pay with retail investor share classes, rather than less expensive institutional class shares,” the suit alleges.
Trader Joe’s did not respond to media inquiry by press time.