New Schlichter lawsuit targets MEP

Pentegra Retirement Services is being sued over its multiple-employer plan, court documents filed Tuesday show.

The case is the latest brought by law firm Schlichter Bogard & Denton, which for more than a decade has led the way amid a massive amount of class-action litigation against retirement plan sponsors.

The law firm, seeking to represent a proposed class of more than 25,000 people, alleges that Pentegra breached its fiduciary duty by letting record-keeping and investment costs skyrocket and by engaging in self-dealing.

Administrative costs were several times higher for participants than those in comparably sized plans that bargained for lower rates, the lawsuit alleges. The investment fees of the mutual funds and collective investment trusts on the plan menu were also as much as 9,000% higher than rates available for lower-cost share classes of the same products, the complaint stated.

Pentegra’s Defined Contribution Plan for Financial Institutions represented more than $2.1 billion in assets among nearly 30,000 participants at about 250 employers, mostly small banks and credit unions, as of the end of 2018, data from the Department of Labor show.

“To date we’ve not been served, but obviously we’re aware of the complaint,” Pentegra general counsel Robert Alin said. “We reject the claims and intend to mount a vigorous defense against them. In fact, Pentegra is looking forward to strongly defending [against] this lawsuit and standing up for the valuable services we provide to participating employers and their employees.”

The lawsuit tries to paint a picture of conflicts of interest as the plan’s board, which included Pentegra employees, agreed to contracts with the company, including the use of its own CITs.

In 2018, participants paid about $390 per year in record-keeping and administrative fees, while a more reasonable rate for a plan that size was about $65, according to the complaint.

“In light of the excessive fees and increasing amounts paid while services remained constant, it is evident that defendants did not engage an independent fiduciary to review and approve the arrangement between Pentegra and the plan,” the complaint read.

The lawsuit also points to other costs absorbed by the plan, citing hotel fees as an example.

“In 2010, plan assets were used to make a $7,370 payment to the Ritz Carlton Naples and $5,015 payment to the New York Palace Hotel, presumably for defendants’ personal benefit,” the complaint read.

The complaint was filed in U.S. District Court for the Southern District of New York.

It named two plaintiffs but is seeking class certification for many more.

The plaintiffs are seeking restitution for the alleged losses and attorneys’ fees. They are also asking for the removal of plan fiduciaries who allegedly breached their duties to participants and to reform the plan with lower-cost investments and cheaper administrative services.

[More: The SECURE Act and open MEPs: Opportunities and threats for advisers]

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