Live Nation Lambasted in 401(k) Excessive Fee Suit

Live Nation finds itself in the crosshairs of litigation — and it has nothing to do with Taylor Swift tickets.

As it turns out, Live Nation Entertainment Inc. (which merged with TicketMaster in 2010), currently embroiled in controversy about access to tickets for mega star Taylor Swift, now also finds itself targeted in an excessive fee suit regarding its 401(k).

According to a suit filed in the U.S. District Court for the Central District of California (Avecilla v. Live Nation Entertainment Inc., C.D. Cal., No. 2:23-cv-01943, complaint 3/15/23) by participant-plaintiffs (the plan has roughly 9,000 participants) Pamela Avecilla and Sean Bailey, the fiduciaries of the $769 million plan (and the employer and its board of directors[i]) “chose to accept the benefits of federal and state tax  deferrals for their employees via a 401(k)  plan, and the owners and executives of Defendant organizations have benefitted financially for years from the same tax benefits. However, Defendants have not followed ERISA’s standard of care.”

Breach ‘Reach?’
 

More specifically, the suit alleges that the plan fiduciaries “breached their fiduciary duties of prudence and loyalty by:

• Offering and maintaining  funds with higher-cost share classes when identical lower-cost class shares were available and could have been offered to participants resulting in costs for services that provided no value to them and resulted in a reduction of compounded return gains;
• Offering a guaranteed income product that carried unnecessarily high risk, generated relatively low returns and offering an expensive share class of that product;
• Offering expensive investments, depriving participants of compounded returns which greatly exceed the annual cost of fees and revenue sharing; and
• Failing to maintain and restore trust assets.”

Perhaps heedless to say, they note that, “Plan suffered millions of dollars in losses resulting from   Defendants’ fiduciary breaches and remains exposed to harm and continued future losses…”

The suit presents a comparative table that they claim backs up their assertion that “of the 21-22 investment options for which lower-cost share classes were available, the less expensive options were the better options. Defendants’ failure to select those options raises the inference of imprudence.”  More specifically, the suit states that, “Apart from the expenses and their adverse effect on yield and performance, share classes are identical. They share the same portfolio manager(s), stocks/bonds, allocations and risk characteristics.” They continued to note that “while it is possible that some share classes have higher minimum initial investment requirements, those requirements are commonly waived for qualified retirement plans and all of the funds have sufficient assets to meet the highest of those minimums. The harm to participants as a result of lost returns is estimated to be nearly $4.5 million through the limitations period” — and then proceed to list several specific examples apparently differentiated only by share class (and expenses).

Revenue Sharing ‘Burdens’
 

“The use of share classes to create funds for revenue sharing does not justify the increased fees and lost returns imposed on Plan participants,” the suit notes. “Rather, empirically speaking, revenue sharing burdens on mutual fund investors are always more costly over time than the revenue sharing credit offered by the corresponding mutual fund share class.” Beyond that, the suit notes that the lag in timing of crediting those rebates means that “the Plan effectively lends out the rebated funds until such time as  the rebate comes through, rather than keeping them in the Trust and accruing gains during that time.” 

They then make another unusual argument; “Indeed, because not all funds generate fees for revenue sharing, only those participants invested in the revenue sharing funds pay for the revenue sharing and the other participants get a free ride — which is impermissible discrimination against participants.” That timing difference also means that the rebates might well go to different participants than paid those fees to begin with. All made worse, they allege, by defaulting participants in the particular class of the Fidelity Freedom funds chosen as the plan’s qualified default investment alternative (QDIA).

All of this — they allege — would have been identified — and could have been remedied — if a prudent review and monitoring process had been in place.

Stable ‘Values?’
 

Not that that was the only issue here. The suit also takes issue with the stable value offering in the plan.  More specifically, they challenged the “excessive spread fees,” which they assert “resulted in a loss (before compounding) in excess of $2 million of participants’ retirement savings. This loss is something a competent, prudent, and diligent fiduciary would have known was happening in advance and would have been able to avoid.” With regard to that investment, the suit also challenged the lack of an RFP and a failure to diversify.

The plaintiffs here are represented by a new face to this type litigation; Christina Humphrey Law PC, though their website has a tab dedicated to 401k Excessive Fee Litigation, alongside an offer of a Free Consultation.

Footnote

[1] The suit acknowledges that, “although not currently named as Defendants,” there are covered service providers serve as “Parties of Interest” to this litigation, specifically Merrill Lynch (to provide Code 28 Investment management services to the Plan), Strategic Advisors, Inc. (to serve as a Code 27 Investment advisor to the Plan), and Fidelity Investments Institutional (to serve as the Plan’s recordkeeper and Trustee).