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Record Keepers Score Win in Dismissal of Voya Law Suit But Plan Sponsors Should Beware

Though Voya scored a victory when a lawsuit filed by a participant in a the Nestle’s 401k plan alleging that the provider overcharged the plan when it received revenue sharing from Financial Engines, a managed account provider, was dismissed, 401k and 403b plan sponsors should take cold comfort.

The court dismissed the case because it ruled that Voya was not a fiduciary when it negotiated the financial arrangement with Financial Engines and had no control over who would use the services. Similar suits still pending have been filed against other record keepers including Fidelity, Xerox and Aon Hewitt.

So while record keepers might be celebrating the dismissal of the case against Voya, plan sponsors need to pay close attention.

Like with any revenue that a service provider hired by a plan sponsor paid out of plan assets, the ERISA fiduciary standard is that fees have to be reasonable. So the question is whether Nestle’s plan had calculated the revenue that Voya received from Financial Engines to determine if the overall fees were reasonable in light of the services rendered compared to other plans similarly situated.

Which raises the question of whether revenue sharing paid to investment providers have a place within ERISA plans in the post-DOL conflict of interest rule. These arrangements between record keepers, TPAs, advisors and the companies that manage money are difficult if not impossible for most plan sponsors to understand and track.

And while it may have been true that Voya and other record keepers were not acting as fiduciaries before the definition changed on June 9, 2017 when it negotiated their cut for services provided by Financial Engines to their clients, perhaps in this new world they might be considered fiduciaries.

Which raises additional questions about compensation paid to broker dealers and RIAs as well as “marketing” groups that might have incentives to steer their advisors to certain investments that pay them additional revenue. Unless, of course, that revenue is level.

Interesting times.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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