New Great West case and Revenue Sharing

Add Great West under their Empower Retirement brand name as the latest bundled provider being sued. Great West is being sued for revenue sharing fees from mutual funds as part of their program.

Great West is being sued by a participant from the TPS Parking Management LLC 401(k) plan and the suit seeks class action status.  Why class action? Well it seems TPS Marketing has $7 million in assets and Empower covers 32,000 plans, 7 million participants, and administers more than $416 billion in assets. Even if you learned common core math, you can figure it out.

I love the term “kickback” being thrown around in the complaint to describe revenue sharing because I often labeled revenue sharing payment as a “kickback”, “pay to play”, or “payola” years before it became popular.

While I don’t care for revenue sharing and it inadvertently exposes plan sponsors to liability, I think this lawsuit is going to get tossed because I think it’s going to be hard to treat Great West as a fiduciary unless they did something overt to make them a fiduciary. Great West is only going to be on the hook if they are treated as a fiduciary and Great West has a smart team of lawyers that try to make sure that Great West’s contracts and policies avoid them becoming fiduciaries.

While we often hear about the headlines of some of these big settlement ERISA cases, I’m sure many of you don’t realize that providers like Principal, American United Life, and John Hancock heave beaten back lawsuits that have tried to place them on the hook for investment selection because they were not considered fiduciaries.

The lesson here is that even if Great West wins their case like the others, litigation is costly and that’s the cost of using revenue sharing whether you win the case or lose.  So is using revenue sharing funds worth the headache? I think revenue sharing is  a dying practice and we’ll shake our heads within 10 years and remember that this silly practice once existed.

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