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Chevron 401(k) participants sue company over fund performance, high fees

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Participants in Chevron Corp.'s 401(k) plan have sued the company and plan executives, alleging breaches of fiduciary duty for, among other things, paying “unreasonable investment management fees,” providing a money market fund instead of a stable value fund and offering underperforming mutual funds.

The alleged breaches are in a lawsuit seeking class-action status, filed Feb. 17 in U.S. District Court in San Francisco against the company and members of the investment committee of the $19 billion Chevron Employee Savings Investment Plan, San Ramon, Calif.

“Chevron selected high-priced share classes of mutual funds, instead of identical lower-cost share classes of those same mutual funds, which were readily available to the plan,” said the complaint, filed by Jerome J. Schlichter, founding and managing partner of Schlichter, Bogard & Denton L.L.P.

“Chevron also failed to adequately investigate and to offer non-mutual fund alternatives, such as collective trusts and separately managed accounts,” the complaint said. “Each mutual fund in the plan charged fees far in excess of the rates Chevron could have obtained for the plan by using these comparable products.”

The complaint alleges the Chevron plan has offered a Vanguard Prime Money Market Fund as its sole capital preservation option since February 2010. Chevron “imprudently and disloyally … failed to provide a stable value fund as the plan investment option” in violation of the plan's investment policy statement to “provide a high degree of safety and capital preservation,” the complaint said.

The complaint noted that Chevron replaced some mutual funds, switched some mutual funds to cheaper share classes and moved some investments to separate accounts or collective investment trusts from mutual funds during the past six years. The complaint argued that 401(k) plan executives should have acted sooner than they did.

The participants argue the plan has paid “excessive” record-keeping fees to Vanguard Group in part because the record-keeping contract hasn't been subject to an RFP in six years. “A competitive bidding process … would have produced a reasonable record-keeping fee for the plan,” the complaint said. “Chevron failed to prudently monitor and control Vanguard's record-keeping compensation to ensure that only reasonable fees were paid for record keeping and administrative services.”

Representatives from Chevron could not be immediately reached for comment.

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.