A SunTrust Banks retiree sued his former employer this week, accusing the company of enriching itself on high fees it charged employees who took part in certain company 401(k) plan investments from 2002 to 2010.
The suit, which seeks class-action status, contends the Atlanta banking giant favored investment plans operated by SunTrust or its subsidiaries that performed poorly and charged higher fees than plans offered by an independent investment companies.
Losses from fees and poor investment performance total tens of millions of dollars, the suit alleges. According to the suit, there are 34,000 members in the SunTrust 401(k) plan.
Among the defendants are SunTrust, company president William Rogers, members of the company’s board who served on the compensation committee and the bank’s Trusco Capital Management and RidgeWorth Capital Management subsidiaries.
The suit alleges that under the Employee Retirement Income Security Act of 1974, the defendants had a duty to choose investment options for the benefit of employees, not SunTrust.
“We believe the lawsuit to be without merit and we will vigorously defend ourselves,” SunTrust spokesman Mike McCoy said in a statement.
The plaintiff, Barbara Fuller, retired in 2005 after 38 years with SunTrust, according to the suit. Alan Perry, an attorney with Page Perry in Dunwoody who represents Fuller, declined to comment.
Financial companies routinely offer investment choices to employees that are managed by or affiliated with the company, said Dan Kolber, a securities attorney with Intellivest Securities.
But conflicts of interest can arise, he said, and firms must be careful that potential conflicts are properly disclosed.
“Was the retiree aware of the conflict of interest, or was full disclosure made to the retiree, is the question that needs to be answered,” Kolber said.
Several large companies over the years have faced similar suits, Kolber said.
Tractor-maker Caterpillar settled a suit for more than $16 million in 2010 that claimed it allowed outside firms to overcharge for fees on 401(k) investments, according to a report in the Peoria (Ill.) Journal-Star. Caterpillar did not admit fault.
The suit alleges some of the SunTrust-controlled investment funds charged fees several times higher than comparable funds operated by a prominent third-party investment company. The suit says SunTrust’s 401(k) plan controls more than $2 billion, and the company could have negotiated better fees with outside firms.
Company officials removed funds not tied to SunTrust on the grounds of poor performance, but the suit says the company didn’t remove SunTrust-affiliated offerings for poor returns.
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