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Retirement Planning > Saving for Retirement

Trustees at $2 Billion 401(k) Charged With Self-Dealing, Excessive Fees

By Nick Thornton

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An excessive-fee claim under the Employee Retirement Income Security Act has been filed against Insperity, Inc., a provider of outsourced human resource and business management services to small and midsized business.

The case, brought in U.S. District Court for the Northern District of Georgia, alleges trustees to the Insperity 401(k) plan allowed excessively high recordkeeping costs that amounted to self-dealing on the part of plan fiduciaries. It also alleges participants were offered investment options with unnecessarily high fees.

The plan, which held more than $2 billion in assets and served more than 50,000 participants at the end of 2014, is one of the largest 401(k) plans in the country, according to the complaint.

The employees of Insperity’s client companies are offered participation in the plan. Insperity offers its services, which include payroll and benefits administration, to more than 100,000 businesses with more than two million employees. The company’s revenues were $2.3 billion in 2013, according to documents on its website. A request for comment on the case was not returned before press time.

In 2003, the company created Insperity Retirement Services, a wholly owned recordkeeping subsidiary of Insperity, Inc., and soon after became the service provider to the Insperity 401(k) plan, the new record keeper’s first client. By 2013, Insperity Retirement Services administered more than $2 billion in defined contribution assets, 95 percent of which, or $1.9 billion, came from the Insperity 401(k) plan.

Over the course of that relationship, Insperity Retirement Services received both hard-dollar fees, or direct payments from participants’ accounts, and fees from revenue sharing agreements with investment providers to the plan.

At the heart of the case is the claim that that combination of record keeping revenue streams resulted in excessively high costs to plan participants.

“Defendants acted for their benefit to drive revenue and profits to themselves, and Insperity’s own recordkeeping business, at the expense of Plan participants,” according to court documents. Furthermore, the fiduciary trustee and advisor to the plan, Reliance Trust, an Atlanta-based bank, “selected and retained its own high-cost and poorly performing investments to benefit itself at the expense of plan participants,” the claim alleges.

In return for the opportunity to offer its propriety products, Reliance Trust used investment optins with asset-based revenue sharing agreements, to the benefit of Insperity Retirement Services, and ultimately to Insperity, Inc.

One example of the alleged imprudence was the Insperity Horizon Risk-Managed Funds, a proprietary target-date option Reliance created in November 2012 and added to the plan days later. To select a fund with no performance history was “wholly contradictory to the most basic prudent  fiduciary practices,” the claim says.

Given the plan’s size, about 50,000 participants, the claim says fixed recordkeeping costs should have been about $30 per participant. But the plan paid approximately $119 to $142 per participant per year from 2009 through 2014, as much as 473% higher than a reasonable fee, resulting in millions of dollars in excessive fees, according to the complaint.

Plaintiffs’ attorneys allege participants lost over $30 million to excessive record keeping costs.

And as recently as the end of 2014, the plan offered 11 investment options that charged fees from 23% to 133% in excess of fees with similar funds available on the market. In July 2015, the plan added several new investment options, which the suit also alleges came with excessive fees.

Even when cheaper institutional class shares of funds were offered, participants still paid higher fees than had Insperity used the plan’s size to negotiate investments in a separate account, which plaintiffs’ attorneys argue would have been the prudent strategy, given the plan’s sheer size.

“Had Defendants offered separate accounts rather than high-cost mutual funds for the Plan’s investment options, Plan participants would have paid significantly less of their retirement savings for investment management services, thereby having available millions of dollars to build their retirement assets,” the claim argues.

St. Louis-based Schlichter, Bogard and Denton is representing the four named plaintiffs in the suit. The law firm has led numerous excessive fee claims under ERISA.

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