Workers in Washington, D.C., and across the country rely on their employee benefits, including their retirement programs, health insurance and disability insurance. This is one reason why the Employee Retirement Income Security Act, or ERISA, regulates these programs in order to protect employees from the consequences of wasteful, destructive or even fraudulent practices. In one case, popular supermarket chain Trader Joe's is facing a lawsuit over its retirement plan, specifically over the services and fees paid to an investment management company and accusations of poor choices for investment options for the plan.
The Trader Joe's defined contribution retirement plan holds at least $1.6 billion in funds for its employees. Capital Research serves as the plan's recordkeeper and investment manager. The company also works for American Funds, a mutual funds group. The lawsuit alleges that the fund management company has a conflict of interest because it receives fees based on the amount of money invested in the American Funds while also receiving record-keeping fees as direct compensation from plan members. It says that Trader Joe's did not provide sufficient disclosure of the agreement with Capital Research and that excessive compensation to the management firm is wasting plan participants' money.
Capital Research allegedly received revenue-sharing payments as part of its compensation for managing plan assets. The lawsuit charges that this violates ERISA's requirement for rational record-keeping fees, saying that record-keeping is not more costly depending on the size of an individual plan member's balance. It also says that the fees can grow dramatically despite no increase in services, accusing Trader Joe's of potentially squandering assets on excessive fees.
Employers that operate retirement plans have a fiduciary duty to their members. If that duty is breached, the results can be costly. Retirement plan members concerned about potential mismanagement may contact an attorney about pursuing ERISA benefits claims.