Edelson Lechtzin LLP has filed a Class Action Lawsuit on behalf of Participants in the Estee Lauder Companies 401(k) Savings Plan over Excessive Fees
The Complaint, filed in the U.S. District Court for the Southern District of New York, Docket No. 1:20-cv-5779, alleges that as a large plan, the Estee Lauder 401(k) Plan had substantial bargaining power regarding the fees and expenses that were charged against participants' accounts, however, they failed to take appropriate actions to reduce the Plan's administrative expenses. Plaintiff alleges that 401(k) plans with over a billion dollars in assets, like Estee Lauder's 401(k) Plan, should have had recordkeeping costs of approximately $5 per participant per year, but instead, as shown below, the participants paid between $48 and $126 per participant per year:
Additionally, the Complaint alleges that the fiduciaries of the 401(k) Plan failed to scrutinize each investment option that was offered in the plan to ensure it was prudent in terms of cost, and by maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.
The chart below shows that the expense ratios of the 401(k) Plan's investment options were many times greater than comparable passively-managed alternative funds in the same fund category. The chart below analyzes funds in the Plan in 2018 using 2018 expense ratios (except for the Fidelity Freedom Index Funds, which lowered expenses from 0.14% to 0.12% effective June 1, 2019), which demonstrates the greater relative expense of the Plan's funds compared to their alternative fund counterparts.
The above alternative funds outperformed the Plan's funds in their 3- and 5-year average returns as of 2020.
Unlike the vast majority of large 401(k) plans, the Complaint asserts that the Plan does not offer a stable value fund as its "income producing, low risk, liquid fund." Instead, during the class period the Plan offered the Vanguard Federal Money Market Fund, which yielded substantially lower returns by comparison to typical stable value funds and, thus, was an imprudent retirement investment under ERISA. The chart below compares returns of the Plan's Vanguard Federal Money Market Fund to a stable value fund index, the Hueler Analytics Stable Value Pooled Fund Universe, as of March 31, 2020.
The Complaint alleges that these breaches cost the plan and its participants millions of dollars.