Vanguard funds in Chevron plan allegedly not cheap enoughNews added by Benefits Pro on February 24, 2016
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By Nick Thornton

As the spate of fiduciary allegations against plan sponsors shows no signs of slowing, another mega 401(k) plan is being sued over virtually every aspect of the investment menu it offered participants.

This time it is Chevron Corp., the San Ramon, California-based oil giant, and the company’s investment committee that has fiduciary oversight of Employee Savings Investment Plan, which had more than $19 billion in assets and over 40,000 participants as recently as the end of 2014.

As the spate of fiduciary allegations against plan sponsors shows no signs of slowing, another mega 401(k) plan is being sued over virtually every aspect of the investment menu it offered participants.

This time it is Chevron Corp., the San Ramon, California-based oil giant, and the company’s investment committee that has fiduciary oversight of Employee Savings Investment Plan, which had more than $19 billion in assets and over 40,000 participants as recently as the end of 2014.

According to the complaint filed in U.S. District Court for the Northern District of California, each mutual fund in the plan “charged fees far in excess of the rates Chevron could have obtained for the plan” by using comparable products.

The Vanguard Prime Money Market Fund, offered in the plan since 2010, was an imprudent alternative to a stable value fund as the plan’s capital preservation option, the complaint alleges.

Vanguard’s money market fund returned between four and seven basis points for participants between 2010 and 2015, far below the Hueler Stable Value index, which returned between 132 and 312 basis points during the same period.

By not incorporating a stable value fund, participants lost $130 million in savings. The plan continues to offer a money market fund, according to court papers.

Between February 2010 and April 2012, Chevron offered more expensive share classes for 10 Vanguard mutual funds, when institutional shares were available for identical funds within the Vanguard family.

Many of those were passively managed indexed funds, and four of the Vanguard funds noted in the complaint were offered for eight basis points or less.

The plan ultimately implemented institutional shares in 2012, but only long after they were available, the complaint says.

Two non-Vanguard funds — the Artisan Small Cap Value fund and the Artisan Mid Cap fund — were also available in cheaper institutional share classes.

Institutional shares of the Neuberger Berman Genesis Fund were offered, but cheaper R6 class shares were available to participants.

In total, the complaint alleges participants lost more than $20 million in savings resulting from more expensive share classes.

Beyond the claims that participants paid excessive fees in non-institutional share classes, the complaint alleges five non-Vanguard mutual fund offerings should have been offered as separate accounts.

Those funds could have been offered for one-quarter of the fees, the complaint says, using a metric based on a Department of Labor study published in 1998.

Also, Chevron fiduciaries offered a Vanguard collective trust target date series when the family offered an even more inexpensive trust series.

To top it all off, participants paid excessive recordkeeping fees to Vanguard, which is not named as a defendant in the complaint.

Revenue sharing agreements “should have been capped” between February 2010 and March 2012, the plaintiffs allege.

They were not, and participants allegedly paid “millions of dollars” in excessive recordkeeping fees, the complaint says.

All told, the complaint alleges five counts of fiduciary breech, including a failure to monitor fiduciaries.

BrightScope gives Chevron’s Employee Savings Investment Plan a rating of 89, putting it near the top of its peer class. It ranked in the top 15 percent of all plans with respect to total fees and generosity of company match.

St. Louis-based Schlichter, Bogard and Denton is representing the plaintiffs.

Originally posted on BenefitsPro.com
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