Advance Auto Parts and the retailer’s retirement plan committee face a proposed class action over their alleged selection of expensive mutual funds despite the existence of otherwise identical yet cheaper alternatives that the case says could have saved participants and beneficiaries millions.
The 57-page lawsuit further alleges defendants Advance Stores Company Incorporated and The Retirement Committee of Advance Auto Parts, Inc. 401(k) Plan paid covered service providers “excessive compensation” and failed to diversify the plan’s investment options. The case claims Advance and its 401(k) committee have run afoul of the federal Employee Retirement Income Security Act (ERISA), a law that confers upon retirement plan fiduciaries strict standards of loyalty and prudence, and cost plan participants and beneficiaries millions in the process.
“The Defendants chose to accept the benefits of federal and state tax deferrals for their employees via a 401(k) plan, and the owners and executives of Defendant organizations have benefitted financially for years from the same tax benefits,” the complaint says. “However, Defendants have not followed ERISA’s standard of care.”
According to the case, Advance and its retirement plan committee were “influenced” by the ability to use investments offered by fund families that “excessively depleted” the trust and the plaintiffs’ daily net asset values. At the end of each month, the complaint says, the mutual fund family or SEC-registered investment company would pay or send the collected dollars to an intermediary, who would thus never send the defendants a bill. The suit claims the defendants benefited because rather than be billed themselves for periodic service costs, the plan’s participants instead shouldered the administrative expenses.
“This also allowed every future dollar deposited into the Plan to trigger the same deductions because the Defendants directed all fund reinvestments and future purchases from every element of funding to pay these same ‘kickbacks’ to the intermediaries,” the lawsuit alleges.
As a large plan, the Advance 401(k) had “substantial” bargaining power with regard to fees and expenses changed against participants’ investments, the case says. Making matters worse, the suit continues, the defendants failed to both utilize the lowest cost share class for most of the mutual funds in the plan and consider cheaper alternatives to the mutual funds.
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