A federal lawsuit seeking class-action status alleges San Antonio-based H-E-B breached its fiduciary duties by failing to administer its 401(k) retirement plan in the best interest of participants.
The grocery store chain is accused of failing to monitor and control plan expenses, “making it one of the most expensive plans in the country with over $1 billion in assets.”
Plan participants have “suffered significant losses” as a result of H-E-B’s “failure to rein in” costs, the lawsuit adds.
The H-E-B Savings & Retirement Plan had about $2.5 billion in assets at the end of 2017, the most recent figure publicly available. About 67,000 current and former H-E-B employees were part of the plan at that time.
The suit, filed Tuesday in San Antonio federal court, seeks unspecified financial damages.
“H‑E‑B cares deeply about our Partners and their financial well-being,” spokeswoman Dya Campos said in an email. “We intend to vigorously defend the unsubstantiated allegations in this lawsuit. As one of the largest privately-held employers in Texas, we’ve made significant commitments to provide our Partners quality retirement benefits, helping them achieve their financial and retirement goals.”
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It’s the latest in a wave of similar litigation filed against employers in recent years. The suits are brought under the Employee Retirement Income Security Act, or ERISA, which provides protections for individuals in retirement plans.
The lawsuit against H-E-B was brought by Francisco Meza of Houston, a plan participant since 2016, and Marvin Montgomery of Conroe, a plan participant from about 2012 until 2018. They’re asking the court to certify the lawsuit as a class action. The suit estimates the class could number from about 33,000 to 45,000.
The suit alleges that H-E-B’s retirement plan’s fees were at least three times those of the average plan, blaming the company’s “high-cost investment products and managers.”
Plan participants would have saved $10 million in fees in 2016 alone and would have achieved millions of dollars in savings in other years, as well, if H-E-B had limited expenses to the average total cost for similarly sized plans, the lawsuit says.
Three passively managed index mutual funds in the H-E-B retirement plan have expense ratios of 0.11 percent, 0.13 percent and 0.14 percent of assets, which the suit deems “excessive.” Similar funds, by comparison, had expense ratios ranging from 0.015 percent to 0.035 percent.
The is a big deal, the suit says, because “excessive fees can significantly impair the value of a participant’s account” over time.
Expenses for H-E-B’s “LifeStage” funds were significantly more expensive than other alternatives and were among the “worst-performing funds of their kind,” the suit says. LifeStage funds include investments tailored to an individual’s age and stage of career.
H-E-B’s LifeStage funds were heavily invested in equity and hedge funds “and included a byzantine array of eighty component institutional investment strategies, many of which were entirely inappropriate for inclusion in a 401(k) plan,” the suit adds.
The suit also alleges H-E-B directed “handsome payments” to itself on an annual basis for “unspecified services.” Total payments during the period covered by the lawsuit amount to at least $2 million, the suit says.
It appears a “significant portion of these payments were associated with compensation paid to in-house investment personnel for their role in managing the Plan’s investments,” the suit adds. “This type of self-dealing” is “prohibited” by ERISA.
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Kai Richter, an attorney for the plaintiffs, couldn’t immediately be reached for comment.
A spring article in Benefits Law Journal reported that plaintiffs continued to have some success in settling such fee litigation cases in 2018, “but the overall number of settlements and monetary value appears to have dropped in 2018 when compared with the 2015 to 2017 period.”
The top 10 ERISA settlements fell nearly threefold to $313.4 million last year, down from $927 million in 2017 and $807.4 million in 2016, according to a report by the Chicago law firm Seyfarth Shaw.
Companies have had some successes in getting cases tossed and having appeals courts back lower court rulings in their favor, Benefits Law Journal reported.
Patrick Danner is a San Antonio-based staff writer covering banking and civil courts. Read him on our free site, mySA.com, and on our subscriber site, ExpressNews.com. | [email protected] | Twitter: @AlamoPD