Mutual Fund ERISA: Braden vs. Wal-Mart

Springfield, MOA class action lawsuit filed in late March alleges that Wal-Mart, the giant discount retailer, violated mutual fund ERISA statutes and cost its 401(k) employee plan holders and investors $60 million in unnecessary expenditures by purchasing expensive mutual funds, when cheaper alternatives were available.

Jeremy Braden, an employee of Wal-Mart in Ozark, Missouri filed the suit March 31st in US District Court for the Western District of Missouri. His lawsuit appears to be a classic case of ERISA violation, given his allegations that Wal-Mart, and those responsible for managing and administering employee retirement and 401(k) plans (Plan), invested in retail mutual funds that were not only expensive, but were also under-performing.

""The failure of defendants to ensure that the fees and expenses charged to the plan are reasonable is particularly galling give that Wal-Mart has built its image in the marketplace around the concept of cutting costs and rolling back prices," the lawsuit alleges. "The company has failed its own associates by not living up to its own slogans: 'Always Low Prices' and 'Save Money, Live Better.'"

The complaint alleges that all Plan investment options were retail class shares, which historically carry higher fees that institutional class shares. This is curious, considering Wal-Mart's ability to obtain less-expensive institutional class shares given the size of the Wal-Mart retirement plan.

The complaint goes further, in alleging that Plan trustee Merrill Lynch & Co. Inc. received revenue-sharing and other, unspecified kickback payments via Plan investment options, without actually providing any services to the Plan, the suit alleges.

The higher fees allegedly paid for an inferior product, provides a "further affront to the Wal-Mart credo," court documents show.

"While perhaps an explanation, though certainly not an excuse, it was not Wal-Mart's money that was wasted. Rather, it was the retirement savings of Wal-Mart's hard-working, low-paid employees."

The Employment Retirement Income Savings Act (ERISA 1974, as amended) protects retirement savings plans, and 401(k) plan investors from imprudent investment decisions made by those responsible for the careful management and administration of employee plans. To that end, Plan facilitators have a fiduciary responsibility to make prudent investment decisions on behalf of Plan investors, keeping the best interests of Plan investors at heart. Any evidence that imprudent investment choices were made and interpreted as not in the best interest of the Plan investor, is a potential fiduciary breach of ERISA.

The class action lawsuit alleges that Wal-Mart's investment practices unnecessarily cost investors $60 million over six years. Further, the suit alleges and estimates that an additional $20 million will be lost each year from Plan coffers due to future fees and expenses.

The proposed class action seeks to cover any current or former employee who participated in, or benefited from the Plan since January 31st, 2002. It is estimated that more than one million people could be affected.

The suit claims that Wal-Mart failed to inform employees about the impact that the allegedly excessive fees would have on their savings. Employees were also not told, it is claimed, as to why particular investments options were chosen, nor were they informed that less-expensive options were available.

No happy faces here.