Kimberly-Clark Faces ERISA Lawsuit over 401(k) Plan

Kimberly-Clark is being sued by members of its 401(k) and profit sharing plan who allege the personal care company breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing “unreasonably high fees for retirement plan services.”

The plaintiffs argue that the “objectively unreasonable” retirement plan services fees can’t be justified.

“Prudent fiduciaries of 401(k) plans continuously monitor fees against applicable benchmarks and peer groups to identify objectively unreasonable and unjustifiable fees,” the lawsuit said. “Defendants did not engage in a prudent decision-making process, as there is no other explanation for why the plan paid these objectively unreasonable fees for RPS.”

The lawsuit claims the company’s retirement plan had “substantial bargaining power” regarding the fees and expenses that were charged against plan participants’ investments. However, the company “did not sufficiently attempt to reduce the plan’s expenses or exercise appropriate judgment to monitor each investment option to ensure it was a prudent choice,” said the lawsuit.

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Lawyers for the plaintiffs argue that instead of using only one retirement plan services provider, Kimberly-Clark “cobbled together services from many providers, which often leads to a duplication of services and higher fees with no additional benefit to plan participants.”

The lawsuit insists fiduciaries must implement three related processes to prudently manage and control a plan’s recordkeeping costs: pay close attention to the recordkeeping fees being paid by the plan; identify all fees being paid to the plan’s retirement plan services provider; and remain informed about overall trends in the marketplace regarding the fees being paid by other plans.

“At all relevant times, the plan’s fees were excessive when compared with other comparable 401(k) plans offered by other sponsors that had similar numbers of plan participants, and similar amounts of money under management,” said the lawsuit. “The fees were also excessive relative to the RPS services received. These excessive fees led to lower net returns than participants in comparable 401(k) plans enjoyed.”

The lawsuit claims that because Kimberly-Clark did not act in the best interests of the plan’s participants, the plan cost its participants nearly $6.3 million in retirement plan services fees.

A spokesperson for Kimberly-Clark said that as a matter of practice, the company does not comment on litigation matters.

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Tags: 401(k), Employee Retirement Income Security Act, ERISA, fiduciary duty, Kimberly-Clark, plan fees, profit-sharing plan, retirement plan services

The US Securities and Exchange Commission (SEC) has charged the owner of an investment adviser firm with fraudulently raising and misappropriating more than $38 million from approximately 90 investors from the sale of limited partnership interests in a private fund.

According to the SEC’s complaint, Andrew Franzone defrauded investors by making misrepresentations regarding the strategy and investments of a private fund called FF Fund I LP. The regulator alleges Franzone misappropriated fund assets, failed to eliminate or disclose conflicts of interest, and falsely represented the fund would be audited annually. Franzone allegedly told potential and existing investors that his investment strategy for the fund was to maintain a highly liquid portfolio that was mainly focused on options and preferred stock trading.

However, the SEC alleges that in reality Franzone began to invest in highly illiquid investments such as private startups, early-stage companies, and real estate ventures, some of which were launched by Franzone’s friends and associates. The SEC said that despite the change in investment strategy Franzone continued to promote the fund as a primarily liquid investment.

The complaint also alleges multiple conflicts of interests, such as Franzone taking personal loans from the founders of at least two companies in which the fund invested, and pledging fund assets to secure other loans for his own personal benefit.

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The SEC also alleges Franzone misappropriated fund assets for personal expenses, including using $565,000 of FF Fund’s cash to purchase a private airplane hangar to store his personal race car collection.

In late September 2019, FF Fund filed for Chapter 11 bankruptcy and, according to the chief restructuring officer appointed in the bankruptcy, the fund entered bankruptcy holding no liquid securities other than four hedge fund investments that were liquidated for a total of $175,000. The majority of FF Fund’s investments, according to the complaint, were illiquid, non-tradeable, privately held shares in early stage or startup companies, minority interests in real estate partnerships, or unsecured promissory notes with long-term maturities.

The SEC’s complaint, filed in federal court in Manhattan, charges Franzone and FFM with violating the antifraud provisions of the federal securities laws and seeks disgorgement of ill-gotten gains, civil penalties, and permanent and conduct-based injunctive relief.

In a parallel action, the US Attorney’s Office for the Southern District of New York also filed criminal charges against Franzone and arrested him.

“Andrew Franzone allegedly promised his clients access to his successful liquid trading strategy and consistent, positive trading returns. As alleged, those promises were lies,” Audrey Strauss, the US attorney for the Southern District of New York, said in a statement. “Franzone lied about his fund’s investments and performance, and he lied in promising clients that they had could readily access their invested capital.”

Franzone, 44, of Fort Lauderdale, Florida, was charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which also carries a maximum sentence of 20 years in prison.