Bonnie Arbittier / Rivard Report
A federal lawsuit alleges H-E-B failed to administer its investments in the best interest of employees who participate in its 401(k) retirement savings plan.
Brought by two plan participants and filed Tuesday in U.S. District Court in San Antonio, the lawsuit accuses San Antonio-based H-E-B of not monitoring and controlling plan expenses and allowing it to become one of the most expensive “jumbo” 401(k) plans in the country.
In 2017, the H-E-B Savings & Retirement Plan had about $2.5 billion in assets. More than 67,500 current and former H-E-B employees were part of the plan at that time.
A publicly available balance sheet from that year shows the plan had an income of over $442 million and expenses of $143 million, which included benefit payments of almost $139 million.
The lawsuit is asking the court to certify the lawsuit as a class action and estimated that between 33,000 and 45,000 participants could join.
The plaintiffs are seeking to recover losses caused by what they consider H-E-B’s unlawful conduct, as well as other relief provided by the Employee Retirement Income Security Act (ERISA) of 1974. They also are asking the court to compel the privately owned grocer to give up all money and profits received from the plan.
A spokesman for H-E-B issued a statement saying that the company intends to “vigorously defend against the unsubstantiated allegations.”
“H‑E‑B cares deeply about our Partners and their financial well-being,” spokesman Valentino Lucio stated in an email. “As one of the largest privately-held employers in Texas, we’ve made significant commitments to provide our Partners quality retirement benefits, helping them achieve their financial and retirement goals.”
The suit alleges that H-E-B’s retirement plan fees were at least three times that of the average employee retirement plan and “not attributable to enhanced services for participants, but instead defendants’ use of high-cost investment products and managers.”
Target-risk funds, or “LifeStage funds,” also were not properly managed, the lawsuit alleges, which contributed to the plan’s high fees as well as its overall poor performance, which fell in the bottom 3 percent of peer plans overall.
In addition, the suit said H-E-B failed to “prudently monitor” expenses charged within the plan’s index funds, which were up to seven times higher than comparable index funds, and failed to consider alternatives to a money market fund.
The lawsuit also notes that the plan paid “millions of dollars” to H-E-B, an amount that is “unreasonable and unjustified.” The payments appeared to be associated with compensation for in-house investment personnel for their role in managing the plan’s investments, it said.
Plan participants have suffered significant losses, the suit states, due to the high cost of managing the plan. If plan managers had controlled those costs, participants would have saved at least $10 million in fees in 2016 alone, according to the lawsuit.
Named as plaintiffs in the suit are Francisco Meza of Houston, a participant since 2016, and Marvin Montgomery of Conroe, a participant from 2012 to 2018.
The lawsuit was filed on behalf of the plaintiffs by Kendall Law Group of Dallas and Nichols Kaster of Minneapolis, which lists on its website a number of similar ERISA violations cases it has filed against banks, investment firms, and national retail outlets. Nichols Kaster did not respond to a phone message Wednesday afternoon.
Since 2009, over 80,000 ERISA lawsuits have been filed in federal court, according to Plan Adviser article citing data from Lex Machina, a LexisNexis company. Most are settled or dismissed; fewer than 2 percent of cases proceed to trial.
In 2015, H-E-B made its 55,000 employees at the time “owners” as part of a partner stock plan created to celebrate the company’s 110th anniversary.