Whole Foods Settles ERISA 401k Fee Lawsuit for $2 Million

Austin, TXOn June 24, Whole Foods asked Judge Robert Pitman of the Western District of Texas, Austin Division, to approve a $2 million settlement to end Winkelman v. Whole Foods Market, Inc. The class action ERISA lawsuit alleged that fiduciaries of the Whole Foods, Inc. 401k Plan failed to preserve plan assets for the benefit of plan participants and beneficiaries by paying administrative fees that were much higher than those paid by plans of comparable size.

Whole Foods Settles ERISA 401k Fee Lawsuit for Million The settlement seems to be part of a larger trend on the part of fiduciaries to settle excessive fee lawsuits rather than incur additional legal costs or run the risk of a larger award. Recent large ERISA settlements include a UnitedHealth Group settlement of $69 million and a $2.25 million settlement by Kimberly-Clark.

Statistics tell the story

Shauna Winkelman and six other participants in the Whole Foods plan filed their ERISA lawsuit in 2023 on behalf of themselves and 100,000 other participants. Between 2017 and 2021, the plan held more than $6 billion in assets and was classified as a “jumbo” plan.

In a 401k plan, fees and other expenses are paid by participants, deducted directly from their individual account balances. The higher the fees, the less money participants have to retire on. This is the central problem in Winkelman and similar excessive fee lawsuits.

The participants claimed that Whole Foods allowed Fidelity Investments, the plan’s recordkeeper, to charge from $31 to $34 per participant annually. By way of contrast, the annual fees paid by participants in comparable plans at companies like Apple, Costco, Lowe’s, Google, and Macy’s ranged from $8 to $23 per participant.

But cost, one might argue, is only half of the picture. What did the participants get for the premium price they paid? The answer appears to be much the same thing as those who paid less.

As set out in the complaint, nearly all recordkeepers in the marketplace offer the same range of services and can provide them at very little cost. The overall expense to a recordkeeper of providing services generally increases as the number of participants in a plan increases. However, as the number of participants increases, the recordkeeper allocates its fixed costs over a larger participant base, which reduces the per-participant cost. On a per-participant basis, jumbo plans are a bargain for recordkeepers like Fidelity.

So, why were participants in the Whole Foods plan paying more?

Kept in the dark about fiduciary performance

ERISA fiduciaries have a fundamental obligation to act in the best interests of plan participants and beneficiaries, prioritizing their needs above all else. This includes acting prudently, diversifying investments, and ensuring that only reasonable plan expenses are paid. In addition, fiduciaries must also monitor service providers and follow plan documents.

The law also requires service providers, like Fidelity, to disclose information about fees and services provided to plan sponsors, so that fiduciaries can determine whether the fees are reasonable. Fiduciaries must also keep the minutes of meetings where fees are discussed.

In general, fiduciaries must also conduct a request for proposal (RFP) process at regular intervals, often every three years, to determine whether the plan’s recordkeeping expenses have grown significantly or appear high in relation to the general marketplace.
Neither the Fidelity disclosures, nor meeting minutes, nor any RFP results were made available to the Whole Food plan participants. Beyond publicly available information like the data required in annual government filings (Form 5500s) and comparable cost statistics, participants had very little information on the basis of which they could monitor how their retirement savings were being managed. The question of whether fiduciaries acted in compliance with ERISA was nearly impossible to answer.