A Resolution Reached in the Employee Retirement Income Security Act Lawsuit
In an ongoing legal battle, Costco has agreed to a settlement of $5.1 million in response to allegations of fiduciary breaches concerning retirement benefits provided to its employees[^1^]. The lawsuit, initiated in June 2020, was filed by a participant in the Costco 401(k) Retirement Plan against the company, its board of directors, and members of a benefits committee[^2^]. The complaint claimed that these fiduciaries violated their duties under the Employee Retirement Income Security Act (ERISA) by approving exorbitant fees for recordkeeping and failing to adequately review the plan’s investment portfolio[^3^].
The Lawsuit’s Accusations and Costco’s Response
According to the lawsuit, the defendants lacked a proper system for monitoring the plan’s expenses and did not ensure that participants were charged reasonable fees for investment options[^4^]. Furthermore, it was alleged that the fiduciaries neglected to take advantage of the plan’s size to negotiate lower expense ratios for certain investments[^4^].
While settling the case, Costco emphasizes that it neither admits any wrongdoing nor accepts liability for the allegations[^5^]. The $5.1 million settlement will be allocated to a settlement fund, with a maximum of $1.5 million designated for attorney’s fees. The remaining funds will be distributed to participants and beneficiaries of the Costco retirement plan[^5^].
Non-Monetary Provisions in the Settlement Agreement
Apart from the monetary compensation, the settlement agreement includes non-monetary obligations for Costco as well. Starting from the first quarter after the settlement’s effective date, Costco must ensure that the plan administrative service per capita recordkeeping fee does not exceed $3.25 per plan account per quarter[^6^].
The stipulated obligation will endure until the reduction in the plan administrative service per capita recordkeeping fee accumulates to a total of $3.2 million[^7^]. Costco’s fiduciaries must use a specific formula to calculate the level of recordkeeping and administration fees paid[^7^]. The formula involves subtracting the subsequent fee charged from the initial fee and multiplying the result by the number of fee-paying plan accounts during each quarter[^7^]. This process must be repeated for all relevant quarters[^7^].
Costco has the flexibility to achieve the fee reduction by negotiating directly with the recordkeeper or using other reasonable means, such as a request for proposal or company subsidy[^8^]. While the settlement agreement outlines the process, Costco is not obligated to secure a lower fee[^8^].
To access the full text of the settlement agreement, please click here[^9^].
Costco’s $5.1 million settlement brings an end to the ERISA lawsuit, resolving the allegations of fiduciary breaches regarding retirement benefits. As part of the settlement, Costco denies any fault or wrongdoing. The agreement not only compensates the affected parties but also imposes obligations on Costco to limit the plan administrative service per capita recordkeeping fee. By taking these steps, Costco demonstrates its commitment to ensuring fair and reasonable retirement benefits for its employees.[^1^]: Costco Agrees to $5.1M ERISA Case Settlement
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[^9^]: Costco Agrees to $5.1M ERISA Case Settlement