When most people think about ERISA lawsuits, the usual suspects are plan sponsors. They\u2019re the fiduciaries who pick the investments, hire the service providers, and have the crosshairs on their backs when plaintiffs\u2019 firms go looking for blood. But every once in a while, the tables turn, and it\u2019s the providers themselves who end up in the defendant\u2019s chair. That\u2019s exactly what happened in New Jersey, where three participants in separate plans are accusing Empower Advisory Group LLC and its affiliates of orchestrating a scheme to mislead participants into rolling over into high-fee products.<\/p>\n
The Complaint<\/p>\n
The plaintiffs are from three very different plans:<\/p>\n
\u00b7 Shakira Williams-Linzey, from the Central Jersey Family Health Consortium 403(b).<\/p>\n
\u00b7 Jennifer Patton, from the Heliogen, Inc. 401(k).<\/p>\n
\u00b7 Kathleen McFarland, from the Global Medical Response, Inc. 401(k).<\/p>\n
Together, they allege that Empower and its web of affiliates\u2014Empower Retirement LLC, Empower Financial Services Inc., and Empower Annuity Insurance Co. of America\u2014crossed the line from being neutral recordkeepers into being conflicted salespeople. The accusation? That Empower harvested confidential participant data and then used it to target those nearing retirement or with larger balances, steering them into what was portrayed as \u201cthe\u201d recommended investment solution: managed accounts branded as Empower Premier IRA and My Total Retirement.<\/p>\n
On paper, these programs promised personalized, objective advice. In reality, the lawsuit says, participants got little more than cookie-cutter asset allocations stuffed with Empower-affiliated funds, along with fee layers that could reach 1.35% of assets.<\/p>\n
The Fee Angle<\/p>\n
If you\u2019ve been in this business long enough, you know where plaintiffs\u2019 lawyers love to sink their teeth\u2014fees. And the complaint here reads like a case study:<\/p>\n
\u00b7 Advisory fee: up to 0.55%.<\/p>\n
\u00b7 Fund expenses: often flowing back to Empower affiliates.<\/p>\n
\u00b7 All-in cost: as high as 1.35%.<\/p>\n
Now, one and a third percent may not sound like highway robbery if you\u2019re thinking in retail-brokerage terms, but in the retirement plan world, that\u2019s going to catch a fiduciary litigator\u2019s eye. When you add the allegations that sales reps were incentivized by bonuses and commissions\u2014despite Empower\u2019s public claims that they were \u201csalaried and unbiased\u201d\u2014you start to see why plaintiffs\u2019 counsel believes they have a live one.<\/p>\n
A Familiar Pattern<\/p>\n
If all this sounds familiar, it\u2019s because we\u2019ve seen this movie before. Back in 2021, TIAA-CREF shelled out $97 million to settle charges over misleading rollover practices. The allegations in that case? Very similar\u2014sales reps pushing participants toward in-house managed products under the guise of objective advice. The law firm behind the Empower suit, Schlichter Bogard, is no stranger to these kinds of fights. When Schlichter shows up, you know it\u2019s serious.<\/p>\n
Empower\u2019s Position<\/p>\n
To no surprise, Empower says the claims are meritless, pointing out that plaintiffs\u2019 firms like Schlichter regularly sue providers. That may be true, but it doesn\u2019t mean every complaint is frivolous. Empower is the second-largest recordkeeper in the country, with over $1.4 trillion in assets and 17.4 million participants. When you operate at that scale, your compliance practices had better be bulletproof\u2014because if they\u2019re not, the ripple effects hit millions of savers.<\/p>\n
What It Means for the Industry<\/p>\n
This lawsuit is yet another reminder that plan providers aren\u2019t immune from ERISA\u2019s fiduciary standards. It\u2019s not just sponsors who need to worry about their duty of loyalty and prudence. When providers leverage participant data to cross-sell, or when they blur the line between objective advice and product distribution, they\u2019re painting a target on their backs.<\/p>\n
In the end, the question is simple: were participants given truly independent advice, or were they funneled into high-fee, proprietary investments under the guise of objectivity? If it\u2019s the latter, Empower could find itself in the same club as TIAA and others who paid dearly for similar allegations.<\/p>\n
My Take<\/p>\n
For years, I\u2019ve said this business is about trust. Whether you\u2019re a TPA, an advisor, or a recordkeeper, you don\u2019t get to play both sides of the table. If you\u2019re going to present yourself as a fiduciary, you can\u2019t have your hand in the till through revenue-sharing, proprietary funds, or hidden fee layers. Eventually, someone will call you out on it.<\/p>\n
The Empower case is a cautionary tale. Providers need to make a choice: are they in the business of delivering unbiased fiduciary guidance, or are they in the business of selling product? Because trying to do both under the same roof rarely ends well.<\/p>\n
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