Washington, D.C., April 16, 2021 – National class action law firm Edelson Lechtzin LLP, has been appointed by the U.S. District Court for the District of Columbia Circuit to serve as Chair of the Plaintiffs’ Executive Committee in the consolidated ERISA class action litigation brought on behalf of participants and beneficiaries of the American Red Cross Savings Plan.
The lawsuit alleges that the American Red Cross Savings Plan, a 401(k) plan with more than 22,000 participants and over $1.2 billion in assets as of December 31, 2019, is a mega plan in the defined contribution retirement plan marketplace. As such, the Plan had enormous bargaining power with respect to providers of services like recordkeeping.
However, the Plan’s fiduciaries failed to leverage this bargaining power to lower the fees and expenses that were charged against participants’ accounts. Rather, according to a 2019 ranking by BrightScope, the Plan fell in the category of plans with the highest total plan cost for plans above $500 million in assets.” Specifically, during the proposed class period (2015—2019), the Plan’s administrative and recordkeeping fees ranged from $126.89 to $232.16 per participant per year. Such fees are astronomical by any measure.
By comparison, the NEPC 2019 Defined Contribution Progress Report states, “the majority of plans with over 15,000 participants paid slightly more than $40 per participant recordkeeping, trust and custody fees,” and that “[n]o plan with over 15,000 participants paid more than $68 per participant.”
Similarly, the 401(k) Averages Book (20th ed. 2020), which studied smaller plans with under $200 million in assets, says that plans with 200 participants and $20 million in assets have an average recordkeeping and administration cost (through direct compensation) of $12 per participant. Extrapolating such data, the lawsuit alleges “the Plan, with over $1.2 billion dollars in assets and over 22,000 participants in 2019, should have had direct recordkeeping costs below the $5 average….” Thus, the Plan’s total recordkeeping costs are clearly unreasonable.
In addition, during 2019 “all the funds available for investment by participants needlessly bore the Red Cross name at great expense and detriment to Plan participants,” which cost participants more than $1.1 million in expenses as compared to the unbranded version of the same collective investment trusts (CITs). There was “no good-faith explanation for utilizing branded funds when lower-cost unbranded products are available for the exact same investment. Because the branded products chosen by Defendants were the same in every respect other than price to their less expensive counterparts, the more expensive branded funds could not have (1) a potential for higher return, (2) lower financial risk, (3) more services offered, (4) or greater management flexibility. In short, the Plan did not receive any additional services or benefits based on its use of more expensive branded funds; the only consequence was higher costs for Plan participants.”
The case is In re The American National Red Cross ERISA Litigation, Master File No. 1:21-cv-00541 (D.D.C.).
If you would like to learn more about employee benefits class action lawsuits involving 401(k) and 403(b) retirement plans, please contact Edelson Lechtzin LLP at 844-696-7492 or send an email inquiry to schedule a consultation.