Following a jury’s decision to award over $38 million to a class of more than 26,000 participants in Pentegra’s multiple employer plan, the issue of working with providers affiliated with the plan sponsor highlights the potential conflict of interest that I have been emphasizing for many years.
In the case of Khan et al. v. Board of Directors of Pentegra Defined Contribution Plan et al., the jury determined that the fiduciaries of the Multiple Employer Plan, which has more than $2 billion in assets, breached their fiduciary duties under the Employee Retirement Income Security Act by paying unreasonable recordkeeping and administrative fees. The core of the plaintiffs’ complaint centered on the allegations that the defendants failed to ensure that the fees paid by the plan were reasonable for the services received when retaining Pentegra Services Inc. as a service provider.
Using an employer’s own affiliated company as a service provider is problematic, especially with $2 billion in assets at stake. This type of case is exactly the kind that attorney Jerry Schlicter pursues, and this was one of his cases.
The plaintiffs accused Pentegra of profiting from collecting additional fees directly from the employers participating in the Multiple Employer Plan (MEP).
According to a summary of the case, Pentegra President and CEO John Pinto served as a non-voting board member of the plan while also being the president of Pentegra Services Inc. Pinto and the other board members named in the lawsuit were found by the jury to have breached their fiduciary duties. This case serves as a warning for those who use plan providers with even a slight affiliation. If your organization is large enough, you could become a target.
