By: David I. Gensler, President
So the recent spate of 401(k) litigation continued as a law firm challenged the $19 billion dollar Chevron plan’s decision to offer participants the Vanguard Prime Money Market Fund rather than what they deemed to be a better-performing and lower-cost stable value fund. The suit claimed that Chevron failed to follow its own Investment Policy Statement (IPS) that required the plan Fiduciaries to “seek maximum current income… consistent with preservation of capital and liquidity.” The stable value fund, as per the suit, would have offered participants “a high degree of safety and capital preservation.”
The lawsuit further alleges that Chevron could have (and should have) negotiated for a separate account version, or a collective trust rather than pay the higher mutual fund fees. The lawsuit also questions the plan’s use of revenue-sharing to pay the plan’s recordkeeping fees. On this particular point, they challenge that by using revenue sharing to pay the recordkeeping fees, as the plan’s assets increased (from $13 billion to $16 billion and then to $19 billion) the revenue to record keeper went up, even though the record keeping services did not significantly increase. The lawsuit further claims that Chevron failed to direct that a competitive bidding process for recordkeeping services be undertaken.