Six former Trader Joe’s employees sue alleging 70% 401(k) concentration, fees

Six former employees filed Stephen et al. v. Trader Joe’s Co. et al. in the U.S. District Court for the District of Massachusetts, accusing the Trader Joe’s Co. Retirement Plan fiduciaries of concentrating roughly 70% of plan assets in the R4 share class of the American Funds American Balanced Fund and of permitting excessive recordkeeping charges, the complaint states. The filing was made on January 28, and the complaint ties those decisions to the plan’s size and the harm to participants.

The complaint punctures the lineup of funds with a direct charge: “To the financial detriment of plaintiffs and the participants, the R4 share class of the American Balanced Fund saddled the participants with needlessly high fees,” the plaintiffs allege. They contend the plan should have used the lower-fee collective investment trust version of the American Balanced Fund instead of the higher-cost R4 share class.

Plaintiffs also attack recordkeeping costs and identify Capital Group as the plan recordkeeper. The suit says Capital Group “charged fee of $48 per participant for its recordkeeping services, which the lawsuit alleged is ‘grossly excessive’ compared with what the fiduciaries could have negotiated, based on the size of the plan.” Given the plan’s scale, the complaint frames the $48-per-participant charge as evidence of a failure to monitor fees.

The complaint includes a broader charge about plan governance and forfeiture accounting, alleging mismanagement of participant forfeitures. It says Trader Joe’s used “millions of dollars in plan assets, obtained from participant forfeited funds, for its own benefit by using funds to reduce future company contributions.” Plaintiffs are represented by counsel from Jeffrey Hellman, Capozzi Adler, and Muhic Law LLC.

The Trader Joe’s Co. Retirement Plan reported more than $2.7 billion in assets under management and 44,218 participants with account balances at the end of the plan’s year in 2023, according to the plan’s Form 5500 cited in the complaint. Plaintiffs also argue the plan’s omission of a target date suite was imprudent, amplifying their claim that fiduciaries “wholly failed to fulfill their fiduciary obligations in regard to monitoring plan investments and ensuring all fees paid by the plan and participants were reasonable and necessary.”

Defendants named in the complaint include Trader Joe’s Co., its board of directors, and the plan investment committee. Trader Joe’s did not immediately respond to a request for comment as reported in the complaint notice.

The suit arrives amid a wave of litigation scrutinizing 401(k) forfeitures and plan fee practices; the complaint notes at least two other employers face related forfeiture suits. The U.S. District Court docket for Stephen et al. v. Trader Joe’s Co. et al. will register the case number, the defendants’ response filings, and any motions that follow, which will determine whether the allegations about the R4 concentration, the $48 recordkeeping charge, and the use of forfeitures proceed to discovery.