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Liberty Mutual Faces Classic (k) Fee Litigation Case

A new Employee Retirement Income Security Act (ERISA) complaint filed in the U.S. District Court for the District of Massachusetts alleges a host of fiduciary breaches on the part of Liberty Mutual in the operation of its own (k) retirement plan.

The complaint names the company as a defendant, along with the (k) plan administrative committee and more than 40 individuals alleged to be either named or functional fiduciaries.  

The text of the complaint closely mirrors a host of other lawsuits that have been filed against large national employers in the U.S. in recent years—from its allegations that Liberty Mutual failed to use its size to negotiate for better investment and recordkeeping pricing to the allegations that the plan fiduciaries inappropriately selected and then failed to remove poorly performing investment options.

“Multibillion dollar defined contribution [DC] plans, like the [Liberty Mutual] plan, have tremendous bargaining power to obtain high quality, low-cost administrative, managed account and investment management services,” the complaint states. “Instead of using the plan’s bargaining power to benefit participants and beneficiaries, defendants allowed unreasonable expenses to be charged to participants for administration of the plan and for managed account services, and retained poorly performing investments that similarly situated fiduciaries removed from their plans.”

Specific allegations regarding the investment menu include that the defendants retained the Sterling Mid-Cap Value Portfolio “despite the fact that it had grossly underperformed its benchmark and similar mid-cap value funds for years.” Further, the defendants are accused of selecting and retaining the Wells Fargo Government Money Market Fund “as the only stable income investment option in the plan despite the fact that stable value funds provide a similar stable income option with much higher returns in all markets.”

On the recordkeeping front, the allegations are summarized as follows: “The plan’s recordkeeper was Hewitt from at least until July In July , Fidelity became the plan’s recordkeeper. Since at least January 1, , the defendants failed to analyze whether the direct and indirect compensation paid to Hewitt and Fidelity, including revenue sharing Hewitt received from Financial Engines, was reasonable compared to market rates for the same services. Defendants also failed to retain an independent third party to appropriately benchmark Hewitt and Fidelity’s compensation.”

The complaint suggests the plan did not change recordkeepers from at least until July During that time, the plan allegedly paid Hewitt an asset-based recordkeeping fee of 5 basis points (bps), “which amounted to millions of dollars each year,” from at least until

The complaint states that this period brought about “a dramatic decrease in recordkeeping fees across the market and dramatic growth in assets in the Liberty Mutual plan.”

“During that period, the assets in the plan increased from $ billion to $ billion, thereby increasing the recordkeeping fees with no additional services,” the complaint states. “Similarly … the asset-based compensation that Hewitt received from Financial Engines increased. If defendants had been monitoring and benchmarking the plan’s recordkeeping fees, they would not have allowed the plan to pay the same asset-based fee for over five years as the assets in the plan grew by nearly $ million, allowing the recordkeeping fees to increase dramatically based upon nothing but asset growth. … It is clear that defendants also failed to conduct a competitive bidding process for the plan’s recordkeeping services from prior to until at least ”

The complaint goes on to state that the defendants’ “failure to monitor, control and ensure that participants were charged only reasonable fees for recordkeeping services” caused the plan to lose over $ million during the proposed class period. It also goes into significant detail in debating the role of money market funds in (k) plans, arguing like many other cases that stable value funds are a more appropriate option for retirement plan investors.

The full text of the complaint is available here. Liberty Mutual has not yet responded to a request for comment.

Tagged: ERISA, retirement plan litigation


Liberty Mutual sued over its (k)

Liberty Mutual is facing a class-action lawsuit brought by its own (k) participants, who allege the plan’s record keeping fees were out of control.

The plaintiffs are represented by the Naumes Law Group, as well as law firm Schlichter, Bogard & Denton, which has become almost synonymous with retirement-plan litigation. Along with claims related to record keeping costs, the plaintiffs allege that the company breached its fiduciary duty by including two underperforming investment options on the $7 billion plan’s menu. They also allege that the plan’s fiduciaries failed to rein in costs from the managed-accounts provider, Financial Engines.

The case was filed April 10 in U.S. District Court in Massachusetts.

“Multi-billion dollar defined contribution plans, like the plan, have tremendous bargaining power to obtain high quality, low-cost administrative, managed account and investment management services,” according to the complaint. “Defendants allowed unreasonable expenses to be charged to participants for administration of the plan and for managed account services, and retained poorly performing investments that similarly situated fiduciaries removed from their plans.”

Liberty Mutual declined to comment, with a company spokesperson stating that the firm does not speak publicly about litigation.

Participants in the plan have paid asset-based record keeping fees of about 5 basis points since at least , according to the complaint. That led the plan as a whole paying about $ million between and to the record keeper, Hewitt Associates, the plaintiffs wrote.

“As one of the plan’s recordkeepers noted as early as , the cost of recordkeeping services depends on the number of participants (or participant accounts), not on the amount of assets in the participant’s account,” according to the lawsuit. “Thus, the cost of providing recordkeeping services to a participant with a $, account balance is the same for a participant with $1, in her retirement account.”

The plaintiffs also allege that payments made from Financial Engines to Hewitt violated the Employee Retirement Income Security Act, as Hewitt had no role in managing assets that were part of the service. Neither Financial Engines nor Hewitt, or Aon Hewitt’s successor firm, Alight Solutions, were named as defendants. Fidelity Investments is now the record keeper, according to the complaint.

The lawsuit also cites two investment options – the Sterling Mid-Cap Value Portfolio and the Wells Fargo Government Money Market Fund – which the plaintiffs said have lagged their benchmarks. Regarding the money market fund, the complaint cited stable value funds as a superior investment option.

The plaintiffs are seeking restitution for alleged losses, restoration of profits and other relief.

Lawsuits continue

The recently filed cases is more evidence that the pace of ERISA litigation is not necessarily slowing, despite courthouses being physically closed amid the COVID pandemic.

On Tuesday, a separate class-action case was filed against Cerner Corporation over that company’s (k) plan. Plaintiffs in that lawsuit allege the company violated ERISA by funneling much of the plan’s assets to the company’s own stock, which was used as the matching contribution. Between March 31, and March 31, , the stock returned a net of about 12%, while mutual funds tracking the S&P returned an average of about 56%, the lawsuit stated.

The plaintiffs also allege that the company failed to consider cheaper share classes of the mutual funds used in plan or different investment products, such as collective investment trusts or separate accounts.

Cerner declined to comment on the lawsuit.

The plaintiffs in that case are represented by law firm Foulston Siefkin. The lawsuit was filed in U.S. District Court in Kansas.

Cerner has faced similar allegations in the past, which the plaintiffs allude to in the recently filed suit. One difference, though, is that the lead plaintiff in the new case reportedly did not sign an arbitration agreement, “upon which [the] defendants have relied in their recently filed motion to dismiss” in the older case, according to the complaint.

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Delta (k) participants sue Fidelity alleging fiduciary breach

Participants in a Delta Air Lines Inc. (k) plan have sued units of Fidelity Investments, alleging fiduciary breaches in Fidelity's record-keeping role.

The case, Fleming et al. vs. Fidelity Management Trust Co. et al., was filed May 20 in the U.S. District Court in Boston. Delta isn't a party to the lawsuit.

The participants, who are seeking class-action status, alleged that Fidelity “wanted a piece of the action” when Financial Engines was hired to provide investment advice for the Delta Family-Care Savings Plan, according to the complaint. The plan had $ billion in assets as of Dec. 31, , according to its latest Form

“In order to be included as the investment advice service provider on Fidelity's (record-keeping) platform, Financial Engines agreed to pay — and is paying — Fidelity a significant percentage of the fees it collects from (k) plan investors,” the complaint alleged.

Financial Engines isn't a party to the lawsuit.

This arrangement “inflated the price of investment advice services that are critical to the successful management of workers' retirement savings and violates (Fidelity's) fiduciary responsibility,” the complaint said.

Participants also alleged that Fidelity's management of a self-directed brokerage account, called BrokerageLink, “acquires share classes that have higher expense ratios,” the complaint said. These share classes “will pay Fidelity significant amounts in revenue-sharing payments, effectively using the plans' assets for its own benefit and its own account.”

A Fidelity spokesman, wrote in an e-mail Friday that “the allegations in this complaint are without merit, and we intend to defend against them vigorously.”

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.

Fidelity 401k ***VERY IMPORTANT*** 401k Fidelity Review







If you participate in this employer-sponsored plan, Sprout Capital Management, LLC may be able to help improve your portfolio return. The below results are for an aggressive investor, but the risk level can be adjusted to suit your particular circumstances. (Please contact us to get a customized review!)


As an employee, making the right mutual fund selections in your employer&#;s retirement plan can be overwhelming. You often have a limited number of choices, which are pre-selected by your employer. You may be presented with multi-year performance numbers. You may be presented with Morningstar ratings. You may receive advice from a colleague, whose situation is different from your own. What information is important? How do you choose? Do you know how your employer retirement is plan currently invested, or why?

Sprout Capital Management, LLC (SCM) can help. First, SCM helps you determine how much risk is appropriate given your circumstances. Then, SCM helps you position your retirement account in an effort to maximize return for the risk taken, and actively suggests investment changes to maintain this risk profile. SCM believes that disciplined active management can produce much better outcomes for clients than typical, buy-and-hold portfolios.

Strategy Overview

The mutual fund selections available in the plan &#;LIBERTY MUTUAL (K) PLAN&#; include:

1SSMGXPeregrine Small Cap Fund
2WCLCXWestfield Small Cap Growth
3OVEIXSterling Mid Cap Value
4ARTMXArtisan Mid Cap Growth
5PONAXPimco Income
6MSIQXMorgan Stanley Institutional International Equity
7LEMNXMondarin Emerging Markets Equity
8SSHIXGalliard Short Term Bond Fund
9BSBAXNorthern Trust Short Term Investment Fund
10MDDVXBlackrock Equity Index Fund
11EFABlackrock EAFE Index Fund
12SMMDBlackrock Russell Index Fund
13WFBIXBlackrock US Debt Fund
14VIPSXWellington TIPS
15CASHXWells Fargo Money Market Fund

Note that if the employee plan has a cash-equivalent fund or trust (with &#;Stable Value&#;, &#;Guaranteed&#;, &#;FDIC Insured&#;, &#;Money Market&#;, etc., in the fund description), then that selection will be represented by &#;CASHX&#; in the tables above. CASHX assumes an interest rate of zero, but the plan&#;s cash-equivalent fund may earn a little interest.

SCM will help you regularly reallocate among these funds to manage risk and help maximize return.

SCM employs a systematic (rules-based) investment strategy, Program R, to perform this reallocation. This strategy takes into account your particular circumstances, the stock market environment, and the nuances of your employer&#;s plan. During stock bull markets, the strategy reallocates to the plan&#;s top-performing stock funds. When the economy enters a recession, SCM will try to lower risk by reallocating among the plan&#;s lower-risk funds, such as bond funds.

One feature of a rules-based strategy is the ability to &#;backtest&#;. A backtest demonstrates how a strategy would have (hypothetically) performed in recent years. Your employer&#;s funds represented by symbols in bold in the table above may not have enough history to perform a backtest. If the plan&#;s funds do not have 10 years of history, SCM&#;s backtest uses funds from other providers with similar market exposure and similar bottom-line performance. The funds used by the backtest are shown in the column &#;Backtest Symbol&#; in the table below:

InceptionBacktest SymbolBacktest Inception

Strategy Results

P ExternalPlot_BacktestvsFunds.jpg Strategy Comparison

The results are hypothetical results and NOT an indicator of future results and do NOT represent returns that any investor actually attained. &#;Program R&#;/&#;SCM Strategy&#; reflects SCM&#;s management fee of 1%. Results are net of fund expenses and reflect re-invested dividends or distributions, but do not reflect other fees that may be levied by the employer plan.

Sprout Capital Management, LLC&#;s strategy, Program R, produced a % cumulative annualized return since September in its backtest using the funds in this plan. As a point of comparison, the best performing fund in LIBERTY MUTUAL GROUP INC.&#;s plan is &#;Artisan Mid Cap Growth&#;, proxied by the symbol ARTMX, which produced a % cumulative annualized return over the same time frame. (It is unlikely that you would have bought and held this fund and only this fund over that time frame, so your return is likely lower than % for a comparable period!) Sprout Capital Management, LLC may help increase your returns.

A steep loss, also known as a drawdown, can be disruptive if you react to the loss by selling in panic. We believe you are more likely to continue using a strategy if you know how it has performed in a backtest. Since September , Program R experienced a % maximum drawdown. By comparison, ARTMX, the top-performing fund in the plan, experienced a % maximum drawdown. Sprout Capital Management, LLC may help lower your risk.

The following table lists the cumulative annualized return (AR) and maximum peak-to-valley drawdown (DD) for Program R, versus non-target-date funds in the plan, starting from September :

AR &#; Annualized % ReturnDD &#; Maximum % DrawdownAR/DD RatioDescription
Program R
ARTMXArtisan Mid Cap Growth
FLGEXWestfield Small Cap Growth
OVEIXSterling Mid Cap Value
SSMGXPeregrine Small Cap Fund
MDDVXBlackrock Equity Index Fund
WFBIXBlackrock US Debt Fund
VIPSXWellington TIPS
SSHIXGalliard Short Term Bond Fund
MSIQXMorgan Stanley Institutional International Equity
BSBAXNorthern Trust Short Term Investment Fund
FEMKXMondarin Emerging Markets Equity
VTMGXBlackrock EAFE Index Fund
VCSBXPimco Income

The results are hypothetical results and NOT an indicator of future results and do NOT represent returns that any investor actually attained. &#;Program R&#;/&#;SCM Strategy&#; reflects SCM&#;s management fee of 1%. Results are net of fund expenses and reflect re-invested dividends or distributions, but do not reflect other fees that may be levied by the employer plan.

Self-Directed Brokerage Account

A self-directed brokerage option (SDBA), if your employer plan has one, is a flexible alternative to employer-selected mutual funds. An SDBA is held in trust for your employer plan at a broker custodian, such as Fidelity, Charles Schwab or TD Ameritrade. An SDBA allows you to invest in a wide array of securities, such as individual stocks and exchange-traded funds (ETFs). Sprout Capital Management, LLC can manage SDBAs through a limited power-of-attorney that you provide to the broker custodian.

Using an SDBA may help increase returns further. SCM invests SDBAs, IRAs, and other brokerage accounts in a separate strategy, Program A. Program A is a systematic strategy that invests in individual stocks. Program A may be used as a complement to Program R.

Our records show that your employer&#;s plan does not have an SDBA option. Our information is not complete for all plans, so it is worth double-checking your plan materials. If your employer plan does in fact have an SDBA option or you have an IRA or taxable account, please click here to learn more about Program A!

Contact Us!

Of course, you may not be an aggressive investor. Not everyone has the same risk tolerance, goals, financial capacity or perception of the market. Sprout Capital Management, LLC can tailor its strategies for your situation.

If you need help deciding how to manage your employer retirement plan or your IRAs and taxable accounts, please contact us to start a discussion!

Find out how Sprout Capital can help manage your LIBERTY MUTUAL GROUP INC. retirement account.


Investment advisory services offered through Sprout Capital Management, LLC, a registered investment adviser. Mutual fund and other security price data sourced from Mutual fund selections for the retirement plan sourced from LIBERTY MUTUAL GROUP INC.&#;s US Department of Labor filing. Mutual fund selection data not guaranteed to be accurate or current. Return and drawdown statistics are calculated on a time-weighted basis. Return and drawdown include the impact of fund expenses, but do not reflect the impact of all employer retirement plan restrictions and fees. Investments entail significant risks and are suitable only for certain investors as part of an overall diversified investment strategy and only for investors able to withstand a total loss of investment. Past performance is not an indication of future results. In addition, there can be no assurance that current investments will be realized as projected. Actual realized returns will depend on, among other factors, future operating results, the value of assets and market conditions at the time of disposition, any related transaction costs, taxes, and fees, and the timing and manner of sale, all of which may differ from the assumptions on which the information contained herein is based. It should not be assumed that any investments described herein were or will be profitable. Backtested performance should not be interpreted as an indication of actual performance. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.



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