- Three Ford workers are suing for what they say are overcharges for 401k investment advice, writes the Detroit Free Press. Ford Motor offers salaried and hourly workers in its retirement savings plans the option of getting professional investment advice. But the workers filing the suit are asking whether Xerox HR Solutions, the retirement plan’s record-keeper, is taking a cut out of the fee they pay for investment advice from Financial Engines, the investment manager, and therefore inflating charges.
- The plaintiffs want to know if the relationship between Xerox and Financial Engines is a pay-to-play arrangement, the Free Press reports. The plaintiffs filed the suit in the U.S. District Court for the Eastern District of Michigan in Detroit and are seeking class action status. Xerox is the only named defendant in the case.
- Court records show that in 2015, Ford’s plan participants paid fees totaling $5.79 million for Financial Engine’s investment advice. Of that amount, Xerox received $1.84 million, or more than 30% of the fees. Ford’s plans had total net assets of $13.94 billion as of Dec. 31, 2015.
The plaintiffs essentially are asking the court to answer their questions about Xerox’s culpability. The reason might be because they’re not 100% certain that a pay-to-play scheme was going on. This uncertainty brings up the question of how well employees understand their retirement plans. A pay-to-play scheme could well have been hidden from them; a lack of transparency certainly is one problem in the case. However, if employees had had a better understanding of their plans, they might have known what a reasonable fee for services should have been and avoided a lawsuit.
Cases such as this made the Labor Department's fiduciary rule necessary. It holds investment brokers accountable for acting in the best interest of employee investors.
Employers as plan sponsors can do a better job of educating workers about their benefits and their retirement savings plans in particular. Surveys have shown that many employees don’t understand them as well as they think. Some don’t know how to select investment options or how they arrived at making their current investment choices. This lack of information is likely the reason why some Ford workers chose to see an investment advisor in the first place.