ADP is facing a class action lawsuit over its TotalSource MEP, brought by a plaintiff with a recent history of 401(k) litigation.
Overland Park, Kan.-based McCaffree Financial Corp. alleges the fees on the multiple-employer plan were several times higher than those on other, similarly sized plans.
McCaffree previously brought a class-action suit against a former investment provider to its plan, Principal Life Insurance Co., alleging in 2014 that Principal charged excessive fees for separate accounts, in violation of the Employee Retirement Income Security Act.
Ultimately, that case was unsuccessful — a U.S. District Court dismissed the case, and an appeals court affirmed that decision in 2016. However, the case had garnered significant attention, with then-Secretary of Labor Thomas Perez filing an amicus brief in support of McCaffree, and a lobbying group, the American Council of Life Insurers, supporting Principal.
The new case, filed May 4 in U.S. District Court in New Jersey, centers on the ADP TotalSource Retirement Savings Plan, which ADP maintains and of which it is the lead sponsor. That MEP represented more than $4.4 billion in assets among about 114,000 participants as of the end of 2018, according to the lawsuit. Also named as a defendant is the plan’s investment adviser, NFP Retirement.
Between 2014 and 2019, the ADP TotalSource Retirement Savings Plan had total plan costs ranging from 65 basis points to 78 bps, not including the fees of the five largest collective investment trusts on the plan menu, according to the lawsuit. By comparison, the average total cost of a plan of more than $1 billion as of 2016 was 28 bps, according to BrightScope and Investment Company Institute data cited in the claim.
“This difference resulted in a [total plan cost] that was over 300% higher than the ADP defendants should have reasonably accepted or negotiated for under any circumstances and caused the plan to incur annual overpayments of fees of at least $16.4 million to $22.2 million,” the plaintiffs wrote in the complaint.
ADP’s “failure to ensure that the plan paid reasonable and appropriate expenses … was a profound and outrageous breach of fiduciary duty based upon any objective evaluation,” the plaintiffs wrote.
That included record-keeping and investment management fees. The plan record keeper, Voya Institutional Plan Services, is not named as a defendant in the case. That company’s affiliated collective investment trusts, including its target-date series, are included within the MEP. Those investment options and others substantially underperformed comparable mutual funds when fees were accounted for, according to the lawsuit.
“In connection with the exorbitant recordkeeping and administrative fees, the ADP defendants also appear to have given Voya carte blanche in designing the plan’s investment menu so as to permit Voya to extract the most fees possible,” the lawsuit stated. “A significant portion of the plan has been invested in Voya-managed investment options … despite the fact that the plan could have, and should have, demanded non-proprietary funds to avoid any potential or realized conflicts of interest.”
ADP is currently reviewing the case, a spokesman said in an email.
“TotalSource works diligently to fully and properly discharge all of its fiduciary and other duties,” the statement read. “We are confident that the ADP TotalSource Retirement Savings Plan offers an excellent retirement savings vehicle for our TotalSource clients and their employees.”
NFP, through a public relations firm, declined to comment.
Voya also declined to comment, noting that it is not a party to the case.