Nevada Federal Court approves MGM Resorts class action lawsuit
- By: Peace Nwankpa
- October 23, 2022
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A Nevada Federal judge has approved the class action lawsuit against MGM Resorts International by the company’s workers.
The lawsuit currently involves more than 31,000 MGM Resorts employees dating back to late 2014. The plaintiffs claim that the company cost them millions of dollars annually by letting them invest in the MGM Resorts-backed 401(k) retirement savings program.
According to the aggrieved workers, MGM Resorts failed to stop the fund administrators from infusing money into third-rate mutual funds that asked for excessively high management fees.
The initial three MGM workers who filed the suit, Jeremy Goard, Shawndrea Stafford, and Eboni Lucas, alleged that the company breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA). They also claimed MGM’s ineptness in paying close attention to the 401(k) program resulted in the participant employees recording considerable financial loss.
“The Plan suffered millions of dollars of losses due to excessive costs and lower net investment returns,” the lawsuit claimed.
The plaintiffs’ complaint said the involved employees’ retirement accounts would be significantly more well off now if MGM had adhered to its fiduciary obligations and monitored the 401(k) plan as well as other associated investments.
The District Magistrate of Nevada, Judge Nancy Koppe, certified the class after the plaintiffs made amends to the class certification. The Judge ruled that the lawsuit had merit and could move forward as a class action litigation.
Due to the ruling, everyone involved in MGM Resorts’ 401(k) plan from September 2014 and who had not released their claims could participate in the lawsuit concerning the company’s alleged exorbitant management fees and the high-cost mutual funds.
ERISA was enacted in 1974, and the federal law imposes unyielding fiduciary duties on organizations offering its workers retirement plans. The law requires that as a designated fiduciary, company’s like MGM Resorts act entirely in “the interest of the participants and beneficiaries.”
According to the class action lawsuit, the company, as well as the administrative committee in charge of the 401(k) program, breached this law. The plaintiffs claim that MGM’s actions were not entirely in the best interest of its workers.
“The prudent selection and monitoring of the investment options by the committee is crucial to fulfill the purpose of the plan, which is, among other things, to enable ‘eligible employees to accumulate and invest savings on a tax-advantaged basis in order to provide additional income and security upon retirement,’” the lawsuit alleged.
Further on, MGM was accused of authorizing, for unidentified reasons, the 401(k) plan’s offer for higher-cost investment vehicles while other funds provide the same type of investment products at considerably lower amounts.
The “overarching questions of law” featured in the class action lawsuit ultimately decides if the company violated its fiduciary duties. The plaintiffs’ claimed that MGM Resorts’ negligence in discovering lower-cost share classes of specific mutual funds in the 401(k) plan breached the organization’s fiduciary duties. MGM’s alleged inability to manage the “compensation paid for recordkeeping and administration services” was also pointed out.
The lawsuit further claimed that in cases where “jumbo plans” were involved, a company’s fiduciary duties are heightened. A prime example is the current situation where the 401(k) employer programs have over $1 billion involved.
“When jumbo plans … have options which approach the retail cost of shares for individual investors or are simply more expensive than the average or median institutional shares for that type of investment, a careful review of the plan and each option is needed for the fiduciaries to fulfill their obligations to the plan participants,” the class action lawsuit continued.
Generally, mutual funds include a fee set aside to pay for managing and administrating the stash. The percentage is usually around 0.75%, meaning that a participant in the plan was to pay $7.50 every year per $1,000 worth of assets in the reserve.
According to the lawsuit, MGM claimed several 401(k) plans supported by the company had management and administration fees that surpassed 1%.
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