A newly-filed lawsuit accuses a small 401(k) plan of offering excessively expensive, actively-managed investment options.
[Read the complaint here.]
The suit is against Checksmart Financial and its 401(k) plan, as well as its investment advisor Cetera Advisor Networks.
From Plan Sponsor:
The lawsuit accuses Checksmart; its plan committee, which only has one member; and the plan’s investment adviser, Cetera Advisor Networks, of only offering expensive and unsuitable actively managed mutual funds as investment options in the plan without an adequate or appropriate number of passively managed and less expensive mutual fund investment options. According to the complaint, most investment options have expense ratios of 88 to 111 bps, which the document says are four or more times greater than retail passively-managed funds—which were not made available to the plan and its participants during the class period. In addition, the average expense of all funds is 104 bps.
The complaint points out there are virtually no Vanguard index funds offered in the plan, and mentions that retail shares of the Vanguard S&P 500 Index Fund have an expense ratio of 16 basis points, while Admiral Shares (which requires a minimum $10,000 investment—an amount the plan would easily cover) has an expense ratio of 5 basis points.
The lawsuit specifically calls out the plan’s ‘Lifestyle Portfolios’—risk-based investment options that hold $13.25 million, or 52.63%, of the approximately $25 million in plan assets—saying not only are they the most expensive plan investments, but they materially underperformed the S&P 500 total return under every benchmark.