The plan sponsor fiduciary and co-fiduciary advisor to a $25 million 401(k) plan are being sued in U.S. District Court for the Southern District of Ohio for allegedly offering high-cost, low performing investment options to plan participants.

The Checksmart Financial 401(k) plan, sponsored by Dublin, Ohio-based Checksmart Financial, which operates retail pay loan stores in eight states, had more than 2,500 participants in plan year 2014, according to Form 5500 data on Brightscope.com. Only about 1,700 of those participants had account balances.

According to court documents, Pagle Helterbrand, whose LinkedIn page says is the company’s senior vice president of human resources with more than 25 years at Checksmart, is the lone plan sponsor fiduciary, and was the lone member of the investment committee to the plan.

Cetera Financial Group, a co-fiduciary to plan, is also named as a defendant. Cetera inherited the Checksmart plan when it acquired broker dealer Walnut Street Securities in 2013. The plan’s recordkeeper, John Hancock, is not named in the suit.

According to the complaint, the Checksmart plan offers participants two sets of investment options: the Lifestyle Portfolio suite, consisting of five different John Hancock actively managed funds designed for different risk tolerance and investment horizons, and a self-directed option for participants wanting autonomy managing retirement assets.

Related: Plan sponsors tell all

As industry studies report more plan sponsors are winnowing investment menus, Checksmart’s plan was stacked with nearly 50 fund options, according to the plan’s 2014 Form 5500 filing, which is available on Brightscope.com.

The fees on those investments are “grossly excessive,” allege attorneys for the one named plaintiff, a current Checksmart employee.

“The investment options made available to the plan’s participants have been focused upon expensive and unsuitably actively-managed mutual funds without an adequate or appropriate number of passively managed and less expensive mutual fund investment options,” the complaint says.

Attorneys for the plaintiff claim actively managed funds “rarely add value” to retirement savings plans. The five John Hancock lifestyle funds carried expense ratios between 94 and 111 basis points. The average weighted expense ratio for all of the assets in the plan was 104 basis points, which the complaint says is “astronomical.”

According to recent data from the Investment Company Institute, of all 401(k) assets that were invested in equity funds in 2015, 88 percent of the assets were invested in funds with expense ratios less than 100 basis points; 45 percent of assets in equity funds were invested in funds with expense ratios less than 50 basis points.

The complaint says there are “virtually no Vanguard index funds” offered in the plan. Data from the plans 2014 Form 5500 filing lists two Vanguard funds among the offerings.

One John Hancock Standard and Poor’s 500 index fund was offered, which held about $400,000 of participant assets in 2014. But even that fund was too expensive, alleges the suit. At 60 basis points, the expense ratio on the John Hancock index fund was nearly four times the cost on Vanguard’s equivalent fund.

In 2014, the five John Hancock actively managed Lifestyle funds accounted for roughly $18 million of the $25 million in plan assets.

The complaint says three of those funds “materially underperformed” S&P 500 index total returns.

The Lifestyle Growth Active Strategy fund had a one-year return of about 8 percent, compared to the nearly 13 percent return with the S&P 500 total return.

But over 10 years, that margin narrows: the Lifestyle Growth fund returned about just over 7 percent, compared to 8.3 percent in the S&P index.

For the past 10 years, returns on the John Hancock Lifestyle Growth Fund, which allocates about 20 percent of assets to underlying fixed-income funds, posted returns on par with its Morningstar peer group, according to information from the fund’s prospectus.

Over the past six years, the allegedly costly investment offerings, and their “dismal” performance, amount to fiduciary breaches in the failure to ensure reasonably priced investment offerings, and in failing to prudently monitor the investments, as evidenced by retaining the options, alleges the claim.

At no point in the complaint do plaintiff’s attorneys address education, communication, or other potential features of a 401(k) plan, nor do they address how the costs of administering the plan are paid.

In 2014, fees and commissions to John Hancock were $79,396, according to Form 5500 data on Brightscope. Fees to Cetera were $34,645. A third-party administrator, Sheakly Pension Administration, was paid $44,751.

Brightscope gives the Checksmart 401(k) plan a rating of 56, below the average rating of 62 for the firm’s peer group. Brightscope classified the total plan fees as high, the plan’s participation rate as below average, and the average account balance as poor.

Instant Insights /

Plan sponsor fiduciary and co-fiduciary advisor to a $25 million 401(k) plan sued

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