Starwood Fiduciaries Accused of Failing to Reduce Plan Fees Soon Enough

01/06/2017 – Take-Away: On December 16, 2016, former employees who participated in the Starwood Hotels & Resorts Worldwide, Inc. Savings & Retirement Plan (“Starwood Plan”) filed a complaint alleging plan fiduciaries breached their duty when they exposed plan participants to “unnecessarily high management fees” and failed to offer a stable value fund.

Background: The Starwood Plan has assets that exceed $1 billion, which the complaint alleges should have provided plan fiduciaries with ample leverage to reduce plan fees. However, although fiduciaries recently managed to cut fund fees in half, they waited too long to do so, according to the lawsuit. As a result, the lawsuit estimates that participants paid excessive fees for a five-year period of time, totaling $20 million. Further, the lawsuit alleges that, because plan fiduciaries failed to obtain competitive bids for recordkeeping services on a regular basis, recordkeeping and administrative fees for the Starwood Plan were more than 50% higher than the median (at approximately $100 per participant).

The lawsuit also took issue with the plan’s money market offering, noting that stable value funds are important alternatives to low-yielding money market funds for conservative investors. The lawsuit alleges that by only offering a money market capital preservation vehicle, Starwood Plan fiduciaries failed to provide plan participants with a reasonable and adequate array of investment choices.

Starwood Plan fiduciaries were also alleged to have:

  • Failed to follow the investment instructions of a plan participant when they allowed a participant’s contributions to be directed to the BlackRock LifePath 2050 Index Fund rather than the six funds that the participant had elected.
  • Failed to disclose revenue sharing amounts to plan participants.
  • Allowed BlackRock to charge unreasonable fees for its BlackRock Life Path Index Funds when compared to Vanguard Institutional Index Fund Institutional Shares.

Bottom Line: The Starwood Plan lawsuit follows a troubling new trend whereby fiduciaries who have improved plan offerings or reduced plan fees are accused of having failed to do so in a timely fashion. The recent case against Vanderbilt University made a similar claim.

— Lori Lucas