Food manufacturing powerhouse Kellogg was recently sued by a former employee, who alleges that the company failed to meet its fiduciary duty in administrating its 401(k) plan. The suit claims that, since at least 2016, Kellogg allowed excessive recordkeeping and managed account fees to accrue and did not take timely action to keep employee-covered fees reasonable. The lawsuit names the company, its board of directors and two separate committees that helped manage the company’s plan.
Failure to Adequately Benchmark
The suit alleges that the structure of typical recordkeeping services should allow companies to easily compare the fees of bundled packages. Since most leading recordkeepers bundle services for both recordkeeping and plan administration on a per-participant basis, the plaintiff asserts that Kellogg should have been able to properly benchmark its plan to find similar services with lower fees. The plaintiff alleges that Kellogg did not periodically solicit bids from other recordkeepers and managed account service providers and failed to meet its fiduciary duty to keep fees at or below standard rates.
Millions Allegedly Lost to Excessive Fees
The plaintiff argues that Kellogg allowed plan participants to collectively lose millions in retirement savings that instead went to recordkeepers and managed account service providers. The suit asserts that Kellogg used a standard level of bundled recordkeeping and administrative services that were comparable to the types of services found in similarly sized plans, but that Kellogg’s fees were higher.
The suit also claims that the Form 5500 and participant documents failed to properly disclose fees. Moreover, the company did not include anything in its service disclosure documents “that suggests that the annual administrative fee charged to participants included any services that were unusual or above and beyond the standard recordkeeping and administrative services…” according to the complaint. For context, in 2020 Kellogg’s plan had nearly 12,250 participants and more than $1.9 billion in assets under management. The sheer size of Kellogg’s plan, known as a “mega plan,” could potentially have given the company extra power to negotiate fees. According to the plaintiffs, the corporation did not explore or negotiate for services with lower per-participant fees.
According to ClassAction.org, standard rates for similar plans typically average out to $35 in annual recordkeeping fees per participant. The case states that Kellogg employees, however, paid about $137 per participant, per year for comparable services from 2016 to 2020.
Benchmarking and Negotiating Are Crucial
Per ClassAction.org, “The only way to determine what is a reasonable amount of fees for recordkeeping and managed account services is to periodically solicit bids for those services,” which Kellogg allegedly failed to do. To minimize the risk of costly and resource-consuming lawsuits, it’s important for sponsors and advisors to benchmark their plans regularly, and to stay abreast of reasonable fees for plan services. PlanFees allows advisors to easily and quickly generate a customizable, high-level benchmark of similar plans to assess participant fees.
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