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BBVA Compass 401(k) Plan Investment Options ERISA Class Action

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This class action concerns the Compass SmartInvestor 401(k) Plan. The complaint alleges that BBVA Compass Bancshares, Inc., Compass Bancshares, Inc., and BBVA USA Bancshares, Inc.—the companies with responsibility for the plan—did not do their fiduciary duty to the plan, violating the Employee Retirement Security Act (ERISA). 

The class for this action is

  • All persons, other than defendants, who were participants in the plan as of July 18, 2013, including (a) beneficiaries of deceased participants and (b) alternate payees under a Qualified Domestic Relations Order, who were receiving or will be entitled to receive benefit payments, and
  • All persons, other than BBVA, who have been participants or beneficiaries in the plan and who had balances in the plan at any time between July 18, 2013 and the date of judgment in this case.

The plan in question is not a small one; it has over $931 million in assets and more than 13,000 participants. 

The complaint makes two major charges. 

 (1) Mismanagement of a large fund

It says that the companies mismanaged “a $100 million money market fund that was the investment equivalent of stuffing cash into a mattress.” This image comes from an earlier case court case that found that “a trustee who decides to stuff cash in a mattress cannot assure that there is no loss merely by holding onto the mattress.”

The fund in question was the Vanguard Money Market Fund, the plan’s one short-term bond investment option. The complaint says, “In a low interest rate environment, such a fund is useless as a long-term investment option because it does not generate sufficient income.” During the period considered by this case, “the use of a money market fund, any money market fund, as an income producing option was imprudent because the return on money market funds was near zero; in fact, at some points, the return net of costs was negative.”

The complaint asserts, “BBVA has an affirmative obligation to generate income from trust assests.”

 (2) Failure to monitor and/or replace high-cost funds 

The complaint says that the companies did not monitor the investment options in the fund and get rid of those that were imprudent, “including high-cost mutual funds whose performance did not justify their increased costs.” 

Investment management fees paid to mutual fund providers are the “most significant expense for most retirement plans[,]” sometimes amounting to 80% of the cost of administering a plan. These fees are subtracted from the investor’s returns. The higher the fees, the lower the gains for the investor. The complaint asserts that the plan had too many high-cost funds and that BBVA did not remove them when they underperformed.

It says that “the performance of an ERISA plan’s investment options must be evaluated net of costs.”

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