The Xerox Corporation and the administrator of its employee 401(k) plan face a proposed class action that alleges participants were unlawfully forced to pay millions in recordkeeping fees at well above reasonable market rates over roughly six years.
The 22-page lawsuit alleges Xerox ran afoul of federal law by failing to prudently and loyally oversee its retirement plan’s recordkeeping service provider—an affiliate of Xerox itself—and instead used the plan to promote its own business interests. The suit claims that from the time defendants Xerox Corporation and the Xerox Corporation Plan Administrator Committee hired affiliate Xerox HR Benefit Services in 2013 until the parties switched to an unaffiliated recordkeeper in 2021, the 401(k) plan’s recordkeeping expenses more than doubled, from $54 per participant in 2013 to $136 in 2019.
This rate increase occurred during a period in which marketplace rates for defined contribution recordkeeping services were “falling dramatically,” the lawsuit alleges.
According to the suit, Norwalk, Conn.-headquartered Xerox’s financial incentive to use an affiliated recordkeeper grew stronger after Xerox HR Benefit Services was spun off into an independent entity, Conduent HR Services, in which Xerox and its shareholders acquired a material ownership stake. The lawsuit alleges that although the defendants received ample notice of the spinoff and had an opportunity to find a new recordkeeper, or negotiate a more favorable deal with the new entity, Xerox kept Conduent as its retirement plan’s recordkeeper for nearly five years following the spinoff, even though recordkeeping expenses at the time doubled almost immediately, the complaint says.
Ultimately, by retaining the services of an affiliated recordkeeper and failing to meaningfully look into alternative options in the marketplace, Xerox allowed its retirement plan to pay “as much as four times more” for recordkeeping services than it otherwise would have in an open market, the filing alleges.
“As a result, participants paid millions of dollars per year in excessive fees from 2015 through 2021,” the case says.
The lawsuit alleges the Xerox defendants have violated the federal Employee Retirement Income Security Act of 1974 (ERISA) by failing to fulfill their fiduciary duties of loyalty and prudence and failing to properly monitor recordkeeping expenses.
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